In recent developments, jolly old US prices continued their ascent in May, as businesses and consumers contended with President Trump’s tariffs. Now, the president has often promised to lower costs across the economy. Yet, the inflation figures tell a different tale.
In May, inflation nudged up to an annualized rate of 2.4%, a slight increase from April’s 2.3%. Month-to-month, the consumer price index saw a modest rise of 0.1%, rather less than the previous month’s 0.2% increase. These figures were somewhat softer than anticipated, as economists had foreseen a headline CPI reading of 2.5% in May amid uncertainty regarding the US economy’s direction.
As it happens, core inflation, excluding those fluctuating food and gas prices, also rose by 0.1% in the month, down from April’s 0.2%, according to the Bureau of Labor Statistics.
May saw the economy churn out 139,000 new jobs, which was a tad down from the monthly average of 149,000 over the preceding year. Indeed, March and April’s job growth numbers were duly revised downwards. Despite this, the unemployment rate has held steady, hovering contentedly between 4% and 4.2% in recent months.
Now, since the grand unveiling of his tariffs on “liberation day” in early April, the Trump administration has endeavored to portray these tariffs as marvelous for the US economy in the long-term. The president insists his tariffs haven’t spurred inflation, claiming prices are actually on the decline.
However, many economists beg to differ, suggesting gradual price increases are likely to persist. A good number of retailers have candidly stated they will resort to price hikes due to tariffs, albeit as a last resort. Insurance company Allianz, in a survey last month, found that 54% of American firms plan to raise prices.
Meanwhile, there’s been no evidence that Trump’s tariffs have invigorated domestic manufacturing. Indeed, a survey reported earlier this month saw US manufacturing sentiment decline for the third straight month, reaching a six-month nadir.
Several of Trump’s tariffs remain in place, even after he halted the bulk of reciprocal tariffs, which are expected to resume in July. Presently, there’s a 10% baseline tariff on all imports, a hefty 30% tariff on Chinese goods (despite a preliminary agreement between Washington and Beijing), and 25% on auto imports, amongst others.
Due to the intricately woven global supply chain, tariffs often lead to price hikes on seemingly unrelated items. For instance, after the president doubled the tax on imported steel to 50%, prices for canned foods are expected to climb, given the increased cost of cans.
Investors have turned their gaze towards the Federal Reserve’s board meeting next week, eagerly anticipating the central bank’s economic outlook. The Fed is expected to keep interest rates steady, positioned at 4.25% to 4.5%, as the board has acknowledged the instability spurred by Trump’s tariffs.
For more detailed analysis on the influence of tariffs, have a gander at The Economist.
