Despite widespread fears to the contrary, President Donald Trump’s tariffs have not appeared in any of the traditional data points measuring inflation.
In fact, separate measurements of consumer and producer prices this week were totally benign, as the index from the Bureau of Labor Statistics showed prices rose just 0.1% in May.
The fear of inflation is over, right?
On the contrary, the coming months are expected to show price increases due to Trump’s desire to ensure that the US is shaking just with its global trading partners. However, so far, the obligation has not raised prices. Except for a few areas that are particularly sensitive to increased import costs.
At least three factors have conspired to curb inflation.
A company that accumulates imported goods ahead of the announcement of tariffs on April 2nd. The amount of time it takes for a fee to enter the real economy. As consumers tighten their belts, the lack of pricing utility companies faces.
“We believe the limited impact from the May tariffs reflects pre-duty stockpiles and delayed pass-throughs in tariffs on import prices,” Nomura Senior Economist Aichi Amemiya said in a memo. “We maintain the view that the impact of tariffs is likely to materialize in the coming months.”
This week’s data provided isolated evidence of tariff pressure.
Canned fruits and vegetables, often imported, rose 1.9% in the month’s prices. Roasted coffee increased by 1.2% and cigarettes increased by 0.8%. There has also been an increase in long-term items such as durable products or major appliances (up 4.3%) and computers and related items (1.1%).
“It reflects what happened during the 2018-20 rounds of import tax, when the costs of imported washing machines surged,” said Joseph Brussieras, RSM’s chief economist.
But one of the biggest tests on whether price increases prove durable, as many economists fear, or as a temporary prism, could depend heavily on consumers who drive nearly 70% of all economic activity.
A regular report on the Fed’s economic activity issued earlier this month points out that some companies are hesitant to pass higher costs, while showing that price increases could rise first.
“We’re looking forward to seeing you in the world,” said Luke Tilly, Chief Economist at the Wilmington Trust. “There’s a lot of consumer debilitating.”
Certainly, that was mainly what happened during the customs duties of Smoot Holy damages in 1930. Many economists believe it helped to cause the Great Repression.
Tilly said he is seeing signs that consumers are already cutting back on vacation and recreation. This shows that companies may not have as much pricing power as they did when inflation began to surge in 2021.
But Fed officials remain on the sidelines as they wait for the summer to see how tariffs affect them. Markets are largely hoping that they are waiting until September for interest rates to be cut by September, despite inflation declining and employment figures showing signs of a crack.
“If this time inflation turns out to be temporary, the Federal Reserve could lower its policy rate later this year,” Bruseras said. “But if consumers push their own inflation expectations high due to the short-term shift in food prices at home and other products, it will be a while before the Fed can cut.”