Tariffs imposed by President Trump’s administration have been expected to raise consumer prices significantly, but recent data shows that inflationary pressures remain more muted than anticipated. Despite this, most economists believe that tariffs will eventually lead to higher inflation, citing lessons from previous trade wars and the pandemic-era economic downturn.
The Consumer Price Index rose 0.1 percent in May, which is still below expectations. However, some economists argue that it’s only a matter of time before prices increase significantly, with Marc Giannoni, chief U.S. economist at Barclays, stating that “inflation is coming” and could reach a 3 percent annual pace by the end of the year.
One reason for the delay in inflation rise is the restraint shown by retailers during Memorial Day sales. As shipping costs soared during the pandemic, it took around 12 to 18 months for those higher costs to fully pass through to consumer prices. This suggests that tariffs may not immediately affect consumer prices as expected.
However, economists also note that consumers are becoming increasingly resistant to price increases, with Thomas Simons, chief U.S. economist at Jefferies, stating that there is “significantly higher resistance among consumers” to accept higher prices. Businesses could find it harder to pass along price increases in a less robust economic environment, and as such, Mr. Giannoni expects tariff-related costs to be partially absorbed by businesses and suppliers.
The Federal Reserve’s wait-and-see approach on interest rates remains unchanged, with policymakers expected to hold rates steady at 4.25 percent to 4.5 percent. However, if inflation continues to be more muted than expected, the Fed may reassess its policy stance. Economists believe that if tariffs do not have a significant impact on consumer prices, it could lead to a reevaluation of their expectations and potentially prompt interest rate cuts sooner.
Overall, while recent data shows a delay in the rise of inflation due to tariffs, most economists still expect higher prices to emerge as tariffs continue to affect the economy.
Source: https://www.nytimes.com/2025/06/13/business/economy/tariff-trade-war-inflation.html