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Inflation Expected to Tick Up 05/13 07:25

   Inflation may have picked up slightly last month as President Donald Trump's 
widespread tariffs kicked in, a trend economists expect will become more 
visible in the coming months.

   WASHINGTON (AP) -- Inflation may have picked up slightly last month as 
President Donald Trump's widespread tariffs kicked in, a trend economists 
expect will become more visible in the coming months.

   Consumer prices are forecast to have risen 2.4% in April compared with a 
year earlier, according to data provider FactSet, the same as in March and down 
from 3% at the start of the year. Still, on a monthly basis, economists expect 
that the consumer price index rose 0.3% from March to April, a pace that would 
worsen inflation if it continued, after it fell for the first time in nearly 
five years the previous month.

   Tuesday's report could provide an early read on how Trump's duties will 
affect the prices Americans pay for necessities and other goods such as 
clothing, shoes, furniture and even groceries. Duties on many goods from Mexico 
and Canada took effect in February and could have impacted prices last month. 
Still, economists forecast the impact from duties to be modest.

   "Firms have indicated ... that they are unsure how much of the tariff cost 
increase they can pass through to consumers without denting demand, and we 
expect some testing of the waters and a staggered pattern of price increases," 
Laura Rosner-Warburton, cofounder of Macro Policy Perspectives, wrote in note 
to clients.

   The Trump administration said early Monday that it had reached a deal with 
China to sharply reduce its tariffs on imports from that country. But even 
taking that agreement into account, U.S. average import taxes remain at 90-year 
highs, economists said, which could worsen inflation in the coming months.

   Tariffs on furniture, agricultural goods from Mexico, and on clothes and 
shoes may have boosted prices last month. Auto prices may have risen because 
car sales surged as Americans sought to get ahead of duties on new cars and car 
parts, reducing the need for dealers to offer discounts.

   Excluding the volatile food and energy categories, core prices are forecast 
to have risen 2.8% last month compared to a year earlier, the same as in March. 
On a monthly basis, they are expected to rise 0.3%, up from just 0.1% the 
previous month.

   It will likely take more time for the full impact of the duties to be 
reflected in prices across U.S. businesses, economists say. Items that were 
already in transit when the tariffs were imposed won't have to pay the duties, 
while many companies have built a stockpile of goods and could hold off on 
price hikes in hopes that tariffs will ultimately be reduced.

   Consumers, at least those outside the top one-fifth in incomes, are also 
more stretched financially than a few years ago and are more likely to resist 
price hikes, which could push firms to delay raising prices as long as possible.

   Consumer prices cooled noticeably in February and March, prompting Trump to 
claim repeatedly on social media that there is "NO INFLATION." Inflation has 
fallen to nearly the 2% target set by the Federal Reserve, the agency charged 
with fighting higher prices.

   Yet grocery prices have jumped in two out of the past three months, despite 
Trump's claims. He has also said gas has fallen to $1.98 a gallon, which is 
below the measured average in any state. AAA said Monday that gas costs an 
average $3.14 a gallon nationwide.

   On Monday, the White House said it has cut the tariff it imposed on Chinese 
goods from 145% to 30%, while China also sharply reduced its duties on U.S. 
goods. Both sides could add 24% tariffs after 90 days if they don't reach a 
broader agreement.

   The smaller import taxes will limit the damage to the U.S. economy, but 
combined with a 10% universal tariff already in place, plus larger import taxes 
on autos, steel, and aluminum, economists forecast they will still slow growth 
this year and worsen inflation.

   The Yale Budget Lab, for example, estimates that the average U.S. tariff 
will be nearly 18% even including the deal reached Monday between the U.S. and 
China. At that level, U.S. duties will be the highest since 1934. The Budget 
Lab calculates the tariffs will lift prices 1.7% and cost the average household 
about $2,800.

   And while Trump may tout his trade deals -- such as the one with the United 
Kingdom reached last week -- he has also said "tariffs is the most beautiful 
word" in the dictionary, and is counting on revenue from duties to narrow the 
budget deficit, suggesting tariffs will likely remain high.

   The tariffs have also put the Federal Reserve in an exceedingly difficult 
spot, as Chair Jerome Powell acknowledged in a news conference last week. 
Powell said the duties have raised the risk of both higher inflation and higher 
unemployment, two challenges that rarely occur simultaneously. If unemployment 
rose, the Fed would typically cut rates to boost the economy, while if 
inflation worsened, the central bank would usually raise rates or leave them 
elevated.

 
 
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