Mad Money

Cramer: Inflation is a real worry, but it's 'far from permanent'

Key Points
  • "Mad Money" host Jim Cramer pushes back on concerns about inflation by listing the economic factors keeping it at bay.
  • Cramer lists auto tariffs, oil prices, lumber costs and the freight industry as potential drivers of deflation.
Inflation is a concern, but 'far from permanent'

CNBC's Jim Cramer could not hold back as he watch the 10-year U.S. Treasury yield sink lower on Thursday and hover around 2.9 percent.

Investors worried for weeks about the yield on the 10-year rising above 3 percent and destroying the stock market's gains, so the "Mad Money" host was surprised that more market-watchers weren't coming out and saying that now that it's declining, stocks could run higher.

"Why are rates falling? Yesterday we got Fed minutes from the May meeting and the esteemed body agreed that inflation may be transitory and not embedded," Cramer said. "If inflation is temporary, people, there's much less need for the Fed to tighten aggressively."

Cramer had five reasons for why the Fed's call that inflation wouldn't run above 2 percent for long seemed sound.

1. Potential auto tariffs

President Donald Trump is reportedly considering placing new tariffs on imported vehicles from Europe and Japan, a move that he has touted as a potential win for U.S. automakers and workers.

"I found his logic spurious," Cramer said. "But I understand it because we're now seeing cars come down in price thanks to a surge in first-quarter imports. While that may be bad for GM and Ford, the glut has turned very deflationary."

2. Oil

Saudi Arabia and Russia are in talks about removing their caps on oil production or drawing a new agreement. If they remove the caps, which were put in place in 2017 to stabilize crude prices, Cramer expects the price of oil to decline.

"Those caps, plus a decline in drilling by several key oil-producing nations, have caused the price of oil to soar," he said. "The prospect of oil rolling over because the Saudis and Russians boost production is also incredibly deflationary. That, too, should send the yields lower."

3. Lumber

Since the United States placed tariffs on Canadian lumber imports in 2017, several panels and the World Trade Organization have looked into reversing the ruling.

Cramer anticipated that the WTO's Dispute Settlement Board could soon rule to repeal the tariffs, which contributed to an over 30 percent rise in lumber prices.

"Watch the stock of Weyerhaeuser, WY, as its trajectory will tell the tale," he advised. "Lumber has added $7,000 to the average price of a home because of these tariffs. A pro-Canada ruling would be a big win for the anti-inflationistas."

4. Freight costs

Rising freight costs have fueled inflationary fears in recent weeks, but Cramer argued that the uptick stemmed from the railroad operators not being prepared for the spike in demand.

"If you consider that Union Pacific just pulled 650 locomotives out of storage and CSX is ramping up for more traffic, you could see a peak in transportation costs, too," he said.

The "Mad Money" host added that trucking companies are also working on increasing capacity, but are hindered by a "major bottleneck" when it comes to hiring drivers.

"But if they pay bonuses like Union Pacific is doing to find workers — $10,000 to $25,000 a pop — the shortage will be alleviated and freight costs will come down," he said. "Immigration would help, too, but this isn't exactly an immigration-friendly administration."

5. Steel and aluminum tariffs

Cramer didn't expect climbing can prices, a result of Trump's tariffs on steel and aluminum imports, to come back down anytime soon.

But with steel producers like Nucor "taking advantage of the higher prices by building new plants and running its factories in overdrive," inflation could still be curbed despite the tariffs, he said.

"Steel could peak if the exporters to this country keep shipping here despite the tariffs ... [because] their cost of capital is often incredibly low thanks to state subsidies," Cramer explained. "Hasn't happened yet, though."


"Let's not forget that what comes up can also come down," Cramer told investors, reminding them that industries subject to inflation aren't just sitting still.

As those industries turn to training lower-skilled workers to keep costs down, the "Mad Money" host acknowledged the inflationary pressures — but told investors not to panic just yet.

"Don't stop fretting about inflation. I like you to be skeptical. But understand, barring endless tariffs by the president, our current bout of inflation is far from permanent," Cramer said. "Oh, and the decline in rates is hugely positive for the stock market, something we sometimes forget on a down day like today."

WATCH: Cramer finds deflationary trends in the US economy

Cramer: Inflation is a real worry, but it's 'far from permanent'

Disclosure: Cramer's charitable trust owns shares of Nucor.

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