US Prices Surge as Tariffs Begin to Impact Consumer Costs

Consumer prices in the United States rose significantly in July 2023, reflecting the initial impact of tariffs imposed by the Trump administration. According to the Consumer Price Index (CPI), prices increased by 2.7% compared to the same month last year. This surge follows a period of reduced inflation in the spring, with the annualised inflation rate climbing by 0.4% since April.

Core inflation, which excludes the often-volatile categories of energy and food, saw an increase of 3.1% over the last month, indicating a faster pace than what was recorded in June. Notably, the prices for takeout and restaurant meals rose by 3.9%, contributing to an overall food price increase of 2.9%. Other areas, such as used cars, housing, and medical care, also experienced price hikes that exceeded the overall inflation rate.

Interestingly, energy prices declined by 1.6% over the year, which likely helped to moderate the overall inflation figures. These developments illustrate the turbulence in the US economy attributed to tariff policies, despite Republican claims that the economy is “firing on all cylinders.”

Impact of Tariffs on Consumer Prices

The tariffs, which include a 10% universal tax on all imports, have been in place since spring, alongside increased tariffs on specific sectors such as steel and aluminum. Although many tariffs were only implemented on August 7, the early effects of these measures are beginning to be felt by consumers.

Retailers, including industry giants like Walmart, Nike, and Macy’s, have indicated that they will pass on costs to consumers, a response that is becoming evident with the recent price increases. Economists note that it typically takes time for tariffs to influence consumer prices, as retailers often build inventory to buffer against immediate cost changes.

Moreover, the labour market is showing signs of strain, with recent revisions to job growth figures revealing a stark decline. Initially reported as an addition of 291,000 jobs in May and June, the revised total now stands at just 33,000. This unexpected drop adds to the complexity of the economic landscape and presents a challenge for policymakers.

Challenges for the Federal Reserve

The increase in prices alongside a tightening labour market has placed the US Federal Reserve in a difficult position. The Fed’s dual mandate requires it to manage inflation while promoting employment. President Trump has publicly criticized the central bank, urging it to lower interest rates to stimulate economic growth. Yet, Fed officials have held off on making any rate changes, citing uncertainty regarding the long-term effects of the tariffs.

In a controversial move, Trump dismissed Erika McEntarfer, the commissioner of the Bureau of Labor Statistics (BLS), following the release of job growth figures that did not meet expectations. He accused the BLS of manipulating data, stating without evidence that the job figures were “rigged.” Subsequently, he nominated EJ Antoni, a long-time critic of the BLS, to lead the department.

After the latest inflation data came out, Trump asserted that the tariffs have not caused inflation or any problems for the US economy, claiming instead that they have led to “massive amounts of CASH pouring into our Treasury’s coffers.”

As the economic landscape continues to evolve, the implications of these tariffs and the responses from both consumers and policymakers will be closely monitored.