Articles
Jun 11, 2025
Tariff dent to US inflation limited in May, deeper impact expected ahead
11 Jun, 2025 Tariff dent to US inflation limited in May, deeper impact expected ahead By Brian Scheid and Annie Sabater Expected price hikes from a wave of US tariffs on global trade have yet to meaningfully show up in government inflation data, but economists warn that increases may be close. The consumer price index, the market's preferred inflation metric, increased 2.4% from May 2024 to May 2025, essentially unchanged since March, the US Bureau of Labor Statistics reported June 11. The core index, which removes volatile energy and food prices, increased 2.8% from May 2024, the smallest annual increase since May 2021. Prices of all items tracked within the index increased just 0.1% from April to May, matching the average monthly growth since February and showing little impact of the historic increase in tariffs from the Trump administration. "The tariff impacts are buried in the details of the report, but admittedly their visibility in May CPI is lower and narrower across the various categories than we and most other economists expected," said Oren Klachkin, a financial market economist at Nationwide. "We expect to see a stronger and broader pass-through in the summer." Klachkin said some subcategories within the government inflation data, such as audio equipment and household furnishings, which increased 1.6% and 0.3%, respectively, from April, showed some tariff impacts. Some goods with the highest exposure to Chinese supply chains saw a relatively substantial increase. Prices for toys, for example, increased 1.3% from April. But other categories, expected to be hit hard by tariffs, such as motor vehicles and clothing, saw little to no impact. Prices for new vehicles, for example, fell by 0.3% from April, while apparel fell 0.4%. "If we examine the sequential inflation increase in categories like toys, appliances, and computers, it suggests that some companies may have managed to implement price increases, but not enough to significantly affect the index," said Julien Lafargue, chief market strategist at Barclays Private Bank. "The impact of tariffs, if any, will become clearer over time, but we do not anticipate a surge in inflation, especially if more deals are made." Consumers were at least partly shielded from the tariffs since businesses were still working off inventories built up in anticipation of President Trump's plans to upend US trade policy and could be holding off on passing on price increases. "Corporate America took huge steps to mitigate tariff risk by stockpiling inventory in late 2024 and early this year," said David Russell, global head of market strategy at TradeStation. "We're more likely to see the costs trickle through and old deals that used to be available disappear." Summer climb Relatively low prices are unlikely to last much longer. "Some businesses will absorb the tariffs to protect their market share, but others will pass them onto customers, and some firms will use a mix of both approaches," Klachkin with Nationwide said. The relatively limited impact of tariffs on inflation data so far may be a poor reflection of what is to come, said James Knightley, chief international economist with ING. "Markets obviously like this, but we need to be careful of saying that tariff fears are overdone," Knightley said. In the Federal Reserve's Beige Book for May, a summary of economic commentary from contacts throughout the US that the central bank released on June 4, tariffs were mentioned 122 times. Tariffs were mentioned just 23 times in the Fed's January Beige Book and not mentioned at all in the October release, prior to Trump's election victory. "There were widespread reports of contacts expecting costs and prices to rise at a faster rate going forward," the latest Beige Book states. "All district reports indicated that higher tariff rates were putting upward pressure on costs and prices."
