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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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