Tariffs may have pushed up inflation a bit in April, government report to show

Boston Globe

13-05-2025

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'Firms have indicated ... that they are unsure how much of the tariff cost increase they can pass through to consumers without denting demand, and we expect some testing of the waters and a staggered pattern of price increases,' Laura Rosner-Warburton, cofounder of Macro Policy Perspectives, wrote in note to clients.
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The Trump administration said early Monday that it had reached a deal with China to sharply reduce its tariffs on imports from that country. But even taking that agreement into account, U.S. average import taxes remain at 90-year highs, economists said, which could worsen inflation in the coming months.
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Tariffs on furniture, agricultural goods from Mexico, and on clothes and shoes may have boosted prices last month. Auto prices may have risen because car sales surged as Americans sought to get ahead of duties on new cars and car parts, reducing the need for dealers to offer discounts.
Excluding the volatile food and energy categories, core prices are forecast to have risen 2.8% last month compared to a year earlier, the same as in March. On a monthly basis, they are expected to rise 0.3%, up from just 0.1% the previous month.
It will likely take more time for the full impact of the duties to be reflected in prices across U.S. businesses, economists say. Items that were already in transit when the tariffs were imposed won't have to pay the duties, while many companies have built a stockpile of goods and could hold off on price hikes in hopes that tariffs will ultimately be reduced.
Consumers, at least those outside the top one-fifth in incomes, are also more stretched financially than a few years ago and are more likely to resist price hikes, which could push firms to delay raising prices as long as possible.
Consumer prices cooled noticeably in February and March, prompting Trump to claim repeatedly on social media that there is 'NO INFLATION.' Inflation has fallen to nearly the 2% target set by the Federal Reserve, the agency charged with fighting higher prices.
Yet grocery prices have jumped in two out of the past three months, despite Trump's claims. He has also said gas has fallen to $1.98 a gallon, which is below the measured average in any state. AAA said Monday that gas costs an average $3.14 a gallon nationwide.
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On Monday, the White House said it has cut the tariff it imposed on Chinese goods from 145% to 30%, while China also sharply reduced its duties on U.S. goods. Both sides could add 24% tariffs after 90 days if they don't reach a broader agreement.
The smaller import taxes will limit the damage to the U.S. economy, but combined with a 10% universal tariff already in place, plus larger import taxes on autos, steel, and aluminum, economists forecast they will still slow growth this year and worsen inflation.
The Yale Budget Lab, for example, estimates that the average U.S. tariff will be nearly 18% even including the deal reached Monday between the U.S. and China. At that level, U.S. duties will be the highest since 1934. The Budget Lab calculates the tariffs will lift prices 1.7% and cost the average household about $2,800.
And while Trump may tout his trade deals — such as the one with the United Kingdom reached last week — he has also said 'tariffs is the most beautiful word' in the dictionary, and is counting on revenue from duties to narrow the budget deficit, suggesting tariffs will likely remain high.
The tariffs have also put the Federal Reserve in an exceedingly difficult spot, as Chair Jerome Powell acknowledged in a news conference last week. Powell said the duties have raised the risk of both higher inflation and higher unemployment, two challenges that rarely occur simultaneously. If unemployment rose, the Fed would typically cut rates to boost the economy, while if inflation worsened, the central bank would usually raise rates or leave them elevated.
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