Washington (Reuters) - US Inflation shows unexpected resilience amidst tariffs hike
Inflation in the U.S. remains minimal following tariff hikes - Trump proclaims: "Fantastic figures"
In an unexpected development, consumer prices in the US increased slightly less than predicted in May, despite the implementation of higher import tariffs. The Labor Department reported a 2.4% year-on-year rise in consumer prices on Wednesday, a drop from April's 2.3%. Economists polled by Reuters had anticipated a 2.5% increase. Prices also climbed 0.1% from April to May, versus the expected lift. The affordable cost of gasoline was the primary factor behind this milder price increase.
US President Donald Trump expressed satisfaction with the price escalation, tweeting, "Great numbers!" Trump also applied pressure on the Federal Reserve to drastically reduce interest rates. "The Fed should slash it by a full point. Then we would have to pay much less interest on outstanding debt. So crucial!" he urged on his Truth Social platform in a series of all-caps posts.
However, economists remain cautious, as the true impact of the tariff hike may not yet be evident. Elmar Völker, an economist at Landesbank Baden-Württemberg (LBBW), commented, "The intricacies of US consumer prices continue to be a puzzle." Despite companies intending to pass tariff-induced price hikes on to consumers, Völker suggests that retailers are still clearing their well-stocked inventories, thus stalling the tariff's influence.
As economist Bastian Hepperle of Hauck Aufhäuser Lampe Privatbank AG explained, the "tariff shock has had little discernible effect on the price data so far." However, a slow-building inflation wave may unfold in the coming months, Hepperle added.
While the White House calls for a significant interest rate reduction, the US central bank has remained guarded in its actions, maintaining the interest rate range between 4.25% and 4.50%. The central bank wants to gather more insights about how President Trump's policy shift will affect inflation and the labor market. The next interest rate decision is scheduled for June 18, and many experts do not expect a rate cut until September.
Cyrus de la Rubia, the chief economist of Hamburg Commercial Bank, concluded, "Inflation remains too high, and the labor market remains robust, making an interest rate cut debatable in the immediate future." As the tariff decisions likely contribute to inflationary pressure, interest rate cuts this year would only materialize if the economy is headed for a recession.
The ongoing evolution of tariffs' impact on US consumer prices is a complex process involving factors such as demand elasticity, supply chain dynamics, and exchange rate fluctuations. Studies show that, initially, importers absorbed tariff costs, but over time, these costs were passed on to consumers. However, the specific impact varies across industries and reflects the unique dynamics of each supply chain.
- The unexpected resilience in US inflation, despite the tariffs hike, could have implications for the future of business and finance, particularly in regards to the pricing of goods and services.
- The delay in the impact of tariff hikes on consumer prices, as suggested by economists, highlights the intricate relationship between politics, general-news, business, and finance, and underscores the importance of understanding this relationship for accurate forecasting.
