Three Reasons Why Tariffs Haven’t Increased Inflation Yet

Despite widespread concerns about inflation, President Donald Trump’s tariffs have not significantly impacted traditional measures of inflation thus far. Recent data from the Bureau of Labor Statistics indicates only a modest price increase of just 0.1% in May.

This situation raises the question: is the inflation scare over? Not quite; predictions suggest that price increases driven by Trump’s trade policies may materialize in the coming months.

However, the tariffs have so far had a limited effect on overall prices, with only select areas feeling the pinch from rising import costs. Several factors have contributed to holding inflation in check.

First, companies stocked up on imported goods before the tariff announcement on April 2, creating a temporary buffer against price hikes. Second, there is a time lag in how tariff costs translate into real economic impacts.

Finally, many businesses are facing pressure from consumers, who are tightening their budgets and limiting their spending power. Aichi Amemiya, a senior economist at Nomura, attributes the muted tariff impact in May to these factors and expects more noticeable effects in the following months.

The latest data does show some localized increases in prices attributed to tariffs. For instance, canned fruits and vegetables rose by 1.9%, roasted coffee increased by 1.2%, and durable goods like major appliances saw a notable jump of 4.3%.

Joseph Brusuelas, chief economist at RSM, noted parallels to previous tariff impacts during the 2018-20 import tax period. As the Federal Reserve observes this landscape, it is expected to wait until September to consider lowering interest rates.

While a rise in inflation expectations from consumers could delay rate cuts, the ongoing consumer weaknesses suggest potential economic challenges ahead, reminiscent of past tariff-induced downturns.