Inflation Likely to Rise as Trump's Tariffs Start to Bite

Strategic Insights -

Consumer prices in the United States are expected to rise 2.5% in May compared to the same month last year, driven by President Donald Trump's tariffs on imports, which are expected to contribute to higher costs of goods such as clothes, furniture, and appliances. The inflation rate is projected to be the first increase in four months and up from 2.3% in April. Core prices, which exclude volatile food and energy categories, are expected to rise 2.9% in May from a year earlier, up from 2.8% in April.

Key Takeaways:

  • The government's inflation report, to be released on Wednesday, is forecast to show that consumer prices rose 2.5% in May compared with a year ago, up from 2.3% in April.
  • Trump's tariffs are expected to contribute to the uptick by raising the cost of some imports, including clothes, furniture, appliances, and possibly new cars, with many retailers and some consumer products companies planning to raise prices or having already done so.
  • Economists and the inflation-fighters at the Federal Reserve focus on core inflation because it often provides a better sense of where inflation is headed, which is expected to rise 2.9% in May from a year earlier, up from 2.8% in April.
  • The full impact of the tariffs likely won't be felt until the second half of the year, analysts say, with some companies holding off on hiking prices during the chaos of April and May when Trump announced sweeping tariffs on imports from nearly 60 countries.
  • Retailers may add surcharges tied to higher tariffs costs at the cash register starting in September, with prices for back-to-school items like clothing and backpacks expected to go up anywhere from 5% to 15%, according to Bryan Eshelman, partner and managing director at consulting firm AlixPartners.
  • Some companies, including Best Buy, Walmart, and Lululemon, have already said they will implement higher prices, with Walmart's chief financial officer John David Rainey predicting that prices will increase on certain items due to the tariffs.

Statistics:

  • Consumer prices are expected to rise 2.5% in May compared with a year ago, up from 2.3% in April.
  • Core prices, which exclude volatile food and energy categories, are expected to rise 2.9% in May from a year earlier, up from 2.8% in April.
  • The tariffs are expected to contribute to higher costs of goods such as clothes, furniture, and appliances.
  • Retailers may add surcharges tied to higher tariffs costs at the cash register starting in September.
  • Prices for back-to-school items like clothing and backpacks are expected to go up anywhere from 5% to 15% due to the tariffs.

Sources:

  • FactSet
  • The Associated Press
  • AlixPartners
  • Bloomberg
  • The Washington Post
  • The New York Times