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US Tariffs and Inflation: A Complex Dance

Strategic Insights

— 2 min read

Newly published data from the US government suggests that US tariffs have not yet significantly impacted domestic prices, with the core inflation rate increasing by 0.3% year-on-year, marking its highest rate since February. Despite this, experts are cautiously optimistic that a steady headline rate could lead to an interest rate cut next month. Meanwhile, China is facing inward, with plans to boost domestic consumption through cheaper borrowing, as the US trade tensions continue to simmer.

Key Takeaways:

  • The US core inflation rate, which excludes goods that fluctuate more regularly, increased by 0.3% year-on-year, its highest rate since February.
  • The steady headline inflation rate of 2.7% in the year to July has eased pressure on the Federal Reserve to raise interest rates, with some experts predicting a potential rate cut next month.
  • China is shifting its focus towards domestic consumption, with plans to boost borrowing costs for businesses and individuals, in response to US tariffs.
  • The US tariffs have not yet significantly impacted domestic prices, despite initial concerns, with President Donald Trump stating that "tariffs have not caused Inflation, or any other problems for America, other than massive amounts of CASH pouring into our Treasury's coffers."
  • Seema Shah, chief global strategist at Principal Asset Management, expects the Federal Reserve to cut interest rates, citing "some sign of tariff pass through to consumer prices" but it is "not significant enough to ring alarm bells."
  • The EU is reviewing its relationship with China, with Brussels launching a new review of how foreign investments and bids can be distorted by overseas governments.
  • The UK's dairy farmers have avoided the imposition of new barriers to their exports to Egypt, protecting an estimated £250m in additional export opportunities over five years.
  • UK Export Finance's (UKEF) support for UK business Rainbo to deliver millions of pounds' worth of equipment to Uganda has been announced.
  • Rolls-Royce's nuclear reactor plans could make it Britain's most valuable company, if used to power AI data centers.

Statistics:

  • Core inflation rate increased by 0.3% year-on-year, marking its highest rate since February.
  • Year-on-year headline inflation rate of 2.7% in the year to July.
  • £250m in additional export opportunities for UK dairy farmers over five years, as a result of avoiding halal certification requirements for imports of dairy products by Egypt.
  • £250m (converted to USD) is the estimated total value of export opportunities protected by the UK's decision.

Sources:

  • The Institute of Export and International Trade
  • US government data
  • Bloomberg's Chris Anstey
  • The Financial Times (FT)
  • Principal Asset Management
  • BBC
  • Politico Pro's Camille Gijs
  • Provision Trade Federation
  • UK government announcement
  • UK Export Finance (UKEF)

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