Trump tariffs stir US inflation concerns despite mild CPI

Malay Mail

a day ago

WASHINGTON, June 12 — US consumer inflation ticked up in May, in line with analyst expectations, government data showed yesterday as President Donald Trump's sweeping tariffs began to ripple through the world's biggest economy.
The consumer price index (CPI) came in at 2.4 per cent from a year ago, after a 2.3 per cent reading in April, the Labour Department said, with headline figures cooled by energy prices.
All eyes were on the data after Trump imposed a blanket 10 per cent levy on imports from almost all trading partners in early April.
He also unveiled higher rates on dozens of economies including India and the European Union, although these have been suspended until early July.
Trump engaged in a tit-for-tat tariff escalation with China as well, with both sides temporarily lowering eye-wateringly-high levies on each other's products in May.
Despite the wide-ranging duties, analysts said it will take months to gauge the impact of Trump's tariffs on consumer inflation.
This is partly because businesses rushed to stockpile goods before the new tariffs kicked in — and they are now still working their way through existing inventory.
'As that inventory level gets worked down, we'll see a larger and larger pass-through of the tariffs,' Nationwide chief economist Kathy Bostjancic told AFP.
In a post on Truth Social after yesterday's data, Trump insisted that the Federal Reserve should cut interest rates, arguing that the country 'would pay much less interest on debt coming due.'
This, however, overlooked that lower interest rates usually increase consumer demand and stoke inflation.
Between April and May, CPI was up 0.1 per cent, cooling from a 0.2 per cent increase from March to April.
While housing prices climbed alongside food costs, energy prices edged down over the month, the report added.
The energy index fell 1.0 per cent in May from a month ago, as the gasoline index declined over the month.
Excluding the volatile food and energy components, so-called core CPI was up 2.8 per cent from a year ago, the Labor Department said.
'Early signs'
'Many Americans are enjoying cheaper gas prices this summer,' said Navy Federal Credit Union chief economist Heather Long.
'But there are early signs of what is coming for Main Street: grocery store prices and appliance costs rose in May,' she added in a note.
Samuel Tombs, chief US economist at Pantheon Macroeconomics, estimates that retailers usually take at least three months to pass on cost increases to customers.
He expects price increases for 'core goods' to gain momentum in June and peak in July, while remaining elevated for the rest of the year — assuming current tariff policies remain in place.
Bostjancic said she did not expect the latest inflation report to significantly impact the US central bank's interest rate decision next week.
'The guidance remains that there's such a great degree of uncertainty of how the increased tariffs will affect prices and ultimately the economy,' she said.
'They need to wait and see, to see how this plays out over the coming months. And we should learn a lot more from the data through the summer and early fall,' she added.
The Federal Reserve has begun cutting interest rates after the Covid-19 pandemic as officials monitor progress in lowering inflation to their long-term 2 per cent goal sustainably.
But Fed policymakers have been cautious in recent months as they monitor how the Trump administration's policies affect the economy. — AFP