A Peek into Inflation Trends
Anticipated Insights from Inflation Report Due on Wednesday
iler prices might have remained stability in March, as gas prices took a nose dive and pulled down the overall inflation rate. This brief reprieve might be short-lived, according to economists. They expect President Donald Trump's tariffs on trading partners to drive up consumer prices, with the inflation data starting to reflect these effects as early as May.
The Federal Reserve has been attempting to lower core inflation to a 2% annual rate, and had made some progress before the tariffs were imposed. However, the tariffs are expected to hike the cost of living, which could be evident in the upcoming inflation and spending report. According to a survey of economists from the Wall Street Journal and Dow Jones Newswires, the cost of living remained flat in March after a 0.3% increase in February. This would result in a 2.2% increase over the past 12 months, the lowest annual inflation rate since September.
The anticipated slowdown in inflation is expected to resemble a similar trend seen in the Consumer Price Index data released earlier this month. In that inflation measure, a decline in gas prices contributed to a reduction in overall inflation.
The Inflation Lull May Be Short-lived
However, the inflation respite might not last long. Economists predict the tariffs imposed by President Donald Trump in April could increase consumer prices, causing merchants to pass on the cost of the import taxes to consumers. Economists at RBC anticipate the inflation surge to be reflected in the May data, which will be reported in June.
If the report on inflation and spending aligns with expectations, it would indicate the strong health of the economy prior to Trump's trade wars causing disruptions. Not only was overall inflation slowing down, but economists expect core inflation, which excludes volatile prices for food and energy, to have risen by just 0.1% over the month. This is down from 0.4% in February, making for a 2.6% increase over the year, the lowest annual core inflation since March 2021.
The Fed uses Core PCE inflation as its benchmark due to the volatility of food and energy prices in shaping lasting inflation trends. Lower core inflation is generally a positive sign for Federal Reserve officials, as it encourages central bankers to lower their interest rates. However, the Fed expects tariffs to push up costs and has been hesitant to make any moves while waiting to see how Trump's trade wars unfold.
Economic Concerns
Nearly 90% of Americans expect tariffs to push up prices on goods. Sectors like clothing, pharmaceuticals, medical equipment, vehicles, and housing are particularly at risk due to the imported components and materials that they use. The Tax Foundation estimates that Trump's 2025 tariffs amount to an average $1,300 annual tax increase per U.S. household.
Economists anticipate a noticeable rise in inflation by May–June 2025 as tariff costs filter through supply chains. In the long run, tariffs could structurally alter trade flows, though their impact on GDP and wage growth remains a point of focus. The Fed is closely monitoring these effects before deciding on any changes to monetary policy.
- Economists expect the tariffs imposed by President Donald Trump in April could increase consumer prices, potentially causing merchants to pass on the cost of the import taxes to consumers, and this inflation surge might be reflected in the May data that will be reported in June.
- If the report on inflation and spending aligns with expectations, it would indicate the strong health of the economy prior to Trump's trade wars causing disruptions, with overall inflation slowing down and core inflation, which excludes volatile prices for food and energy, predicted to have risen by just 0.1% over the month.
- The Fed uses Core PCE inflation as its benchmark due to the volatility of food and energy prices in shaping lasting inflation trends. Lower core inflation is generally a positive sign for Federal Reserve officials, as it encourages central bankers to lower their interest rates.
- Nearly 90% of Americans expect tariffs to push up prices on goods, with sectors like clothing, pharmaceuticals, medical equipment, vehicles, and housing being particularly at risk due to the imported components and materials they use.
- The Tax Foundation estimates that Trump's 2025 tariffs amount to an average $1,300 annual tax increase per U.S. household, and economists anticipate a noticeable rise in inflation by May–June 2025 as tariff costs filter through supply chains.
