US Consumer Prices Surge as Tariffs Begin to Bite

Consumer prices in the United States increased in July 2023, reflecting the impact of tariffs implemented under former President Donald Trump‘s trade policies. The consumer price index (CPI) revealed that prices rose by 2.7% compared to the same month last year. This data highlights a significant shift in the economic landscape as tariffs begin to influence consumer costs.

While inflation had eased in the spring, the annual inflation rate increased by 0.4% since April. Importantly, core inflation, which excludes the often volatile energy and food prices, climbed by 3.1% in July. This uptick was notably higher than the rate observed in June. The rising costs of dining out, with takeout and restaurant prices up 3.9% year-on-year, contributed to a general food price increase of 2.9%. Additionally, prices for used cars, housing, and medical care rose at rates surpassing the overall inflation figure.

Despite these increases, energy prices experienced a decline of 1.6% year-over-year, which may have helped stabilize the overall inflation pace. The latest report indicates that the US economy faces challenges stemming from Trump’s sweeping trade reforms, despite assertions from Republican leaders that the economy is “firing on all cylinders.”

As part of his trade strategy, Trump imposed a 10% universal tariff on all imports and established higher tariffs on several countries, particularly those among the US’s top trading partners. Recently, Trump postponed the implementation of steep tariffs on China for an additional 90 days to allow for ongoing negotiations. Although many tariffs took effect on August 7, 2023, the universal tariff and additional tariffs on specific industries such as steel and aluminum have been active since the spring.

Economists point out that the effects of tariffs on consumer prices are often delayed. Many retailers have reported that they stocked up on inventory to mitigate immediate price increases. Nonetheless, the recent rise in prices suggests that companies are beginning to pass these costs onto consumers, as indicated by leaders from major retailers like Walmart, Nike, and Macy’s.

The impact of tariffs extends beyond consumer prices, affecting the labor market more severely than expected. Recently revised job data revealed that only 33,000 jobs were added in May and June, a drastic drop from the initially reported 291,000. This shrinking labor market complicates the situation for the US Federal Reserve, which aims to balance employment growth with inflation control.

The Fed’s dual mandate has put it in a difficult position, as Trump has criticized the central bank for not reducing interest rates to stimulate economic growth. In response to the July job figures, Trump dismissed Erika McEntarfer, the commissioner of the Bureau of Labor Statistics (BLS), asserting, without evidence, that the job data was “rigged.” He has since nominated economist EJ Antoni, a vocal critic of the BLS, to lead the department.

In light of the latest inflation data, Trump maintained that tariffs have not caused inflation or other economic issues, claiming they have resulted in “massive amounts of CASH pouring into our Treasury’s coffers.” This assertion reflects the ongoing debate about the economic consequences of his administration’s trade policies.

As the situation unfolds, the interplay between tariffs, consumer prices, and employment will continue to be closely monitored by economists and policymakers alike.