The current economic climate in the United States is heavily influenced by President Donald Trump's tariffs, with the administration urging U.S. firms to absorb the costs of these increased import duties. The latest inflation report, due for release on Wednesday by the Bureau of Labor Statistics, is anticipated to provide critical insights into whether businesses are indeed passing these costs onto consumers. This monthly inflation report is expected to show significant trends in price growth across various sectors.
The Consumer Price Index (CPI), which measures the changes in prices for consumer goods and services, is projected to reflect a 12-month increase of 2.4% for May, a slight uptick from the 2.3% annual rate recorded in April. According to a survey by Dow Jones Newswires, "core" inflation—an essential metric for economists that excludes the more volatile categories of food and energy—is expected to rise to 2.9% over the year, up from 2.8% in April. The core month-on-month reading is also anticipated to increase to 0.3%, compared to 0.2% in April.
President Trump's unpredictable tariffs and trade deal announcements have disrupted spending plans for both businesses and consumers. This has led to a notable decline in confidence levels since April, particularly after Trump's introduction of the "Liberation Day" tariffs, which reset the baseline U.S. import duty level to 10%. Despite promising price relief during his campaign, economists argue that the implementation of these tariffs inherently leads to price increases.
As the pressure from tariffs escalates, businesses are increasingly signaling their intent to pass along these higher costs to consumers. Notably, Walmart announced last month that customers would soon begin to experience increased prices. The National Federation of Independent Businesses reported that a net 31% of its surveyed members planned to raise prices last month, a rise from 28% in April. Financial analyst Stephen Kates from Bankrate remarked, “Walmart's announcement highlights how businesses are beginning to feel the pinch, and if large retailers are acknowledging this, smaller businesses are certainly not immune.”
In response to the president's pressure, Walmart stated it would strive to “keep prices as low as we can for as long as we can” given the realities of slim retail margins. This sentiment resonates across various sectors, as the manufacturing industry also reported the highest share of price-increase alerts since November 2022, according to S&P Global.
While some analysts speculate that any recent price relief may stem from a slowing economy, they warn that a weakening labor market is causing consumers to cut back on spending. Reports suggest that the growth in airfare, hotel, and gas prices was likely subdued in May due to reduced travel, with Bank of America data indicating spending rates remain lower than pre-Trump levels.
Even if May’s price-growth data is less severe than anticipated, economists caution that the full ramifications of the tariffs may not be seen immediately. Analysts from Pantheon Macroeconomics noted that it took three months for the price increases resulting from Trump’s 2018 washing machine tariffs to become evident in the data, and when they did, the pass-through was “rapid and complete.” This suggests that the bulk of the tariffs announced in April may fully reflect in consumer prices by July.
Despite the current pace of inflation not matching the record highs seen in 2022, experts like Kates from Bankrate suggest that consumers will continue to feel the effects of these tariffs. He stated, “It’s going to be a persistent itch that doesn’t go away,” highlighting that the pressure on prices is likely to remain a significant issue in the coming months.
