If anyone other than Donald Trump were president, inflation would be yesterday’s problem.
Since peaking at 9% in 2022, the overall inflation rate has declined steadily, hitting a tame 2.4% in May. That’s almost at the 2% level the Federal Reserve considers ideal.
Goods inflation has disappeared. The last time it was above 1% was September 2023. The cost of appliances, clothing, and electronics is actually declining on a year-over-year basis. Gasoline prices are 12% lower than a year ago.
Services inflation is a bit elevated at 3.7%, but this has also been dropping for more than two years. Part of services inflation is the rising cost of labor, which is good for workers.
Under normal circumstances, consumers should be enjoying some newfound purchasing power, given that incomes are now growing more than prices. The Federal Reserve should be poised to restart a cycle of gradual interest rate cuts, which it halted last December, lowering borrowing costs for everybody.
But inflation isn’t licked. It’s just dormant.
Trump’s tariffs on imports are bound to have some inflationary effect, beginning any day now. Trump has raised the average tax on imports from 2.5% to about 16%. That will inevitably raise the cost of some $3 trillion worth of goods Americans buy every year.
Economists thought the May inflation data would start to show signs of upward price pressure from Trump’s import taxes. Not quite yet.
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“The April Consumer Price Index is welcome news,” Oxford Economics reported on June 11. “However, the boost from tariffs will be more noticeable this summer.”
What’s hard to gauge, for now, is the amount of product inventory retailers have in stock from pre-tariff import orders. Imports surged in the first quarter as American firms stocked up, knowing the Trump tariffs were coming. Then, in April, imports plunged after Trump announced sky-high tariffs.
Trump lowered some of those tariffs after financial markets tanked, but trade data for May isn’t out yet. So it’s not clear just how long the pre-tariff inventories will hold out.
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Some economists think signs of tariff pricing are beginning to form. Joe Brusuelas, chief economist at RSM, detects an “emerging sketch” of rising prices caused by tariffs. “Tariff sensitive goods like apparel, electronics and toys are up 0.4% since the beginning of the year and consumer electronics are up 0.5% over that same period,” he wrote in a June 11 analysis.
Those are small month-to-month changes shoppers might not notice — yet — but they represent a reversal of deflationary trends that were in place before Trump took office. “The price increases will be passed along,” Brusuelas said.
Most economists expect overall inflation to rise in the coming months. “Tariff-induced inflation will start showing up in the coming months,” Moody’s Analytics said in its June 11 analysis of the May inflation numbers. Goldman Sachs expects inflation to rise from 2.4% now to around 3.7% by the end of the year.
Will shoppers notice? After three years of elevated prices, consumers seem unusually sensitive to any price hikes. And survey data shows they’re girding for higher prices caused by Trump’s tariffs. The current reprieve is certainly welcome, but it’s too early to celebrate inflation’s demise.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
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