Inflation Picks Up as Tariffs Reach Consumers

Effects of the new import tariffs imposed by the Donald Trump administration are gradually reaching consumers in the United States, as they saw slightly faster inflation in May, according to reports. Knewz.com has learned that the prices of goods and services, excluding volatile food and energy costs, rose 0.3% in May, the most in four months. Federal Reserve Chair Jerome Powell believes goods price inflation will pick up over the course of the summer, as U.S. consumers would have to bear some of the costs.

Powell explained that it took time for the goods tariffs to move through the distribution chain. Businesses that had stocked inventory before the imposition of tariffs absorbed costs, but now the old goods are being replaced by newer imports that are subject to tariffs, and they are passing the increases on to customers. This “lag effect” means inflation is likely to tick up soon. In a news conference after the Fed’s policy meeting, Powell explained, “We’ve had goods inflation just moving up a bit. … We do expect to see more of that over the course of the summer.”

Powell’s view is shared by Federal Reserve Bank of Richmond President Thomas Barkin, who believes “we will see pressure on prices.” He also stated that tariffs are beginning to push consumer prices higher in areas like computers and electronics. Although he does not expect a spike as big as during the pandemic, he emphasized that inflation risks are real. Recent data shows a modest monthly increase in consumer prices, with annual rates around 2.5%. These gentle rises reassure markets that inflation is not out of control yet. However, economists worry tariffs may steadily push it higher in the coming months. “So we’re beginning to see some effects, and we do expect to see more of them over coming months. … We do also see price increases in some of the relevant categories, like personal computers and audio-visual equipment and things like that, attributable to tariff increases,” Powell added.

While most members of the Federal Reserve, including Powell, are taking a cautious, wait-and-see approach to the economy right now, members of the Fed’s Board of Governors think a bit differently. They believe the recent tariffs will cause only a temporary bump in prices, not long-term inflation. As a result, these officials are more open to the idea of cutting short-term interest rates, possibly as soon as the Fed’s late July meeting, to support the economy if needed. Barkin said in his remarks that right now, the Fed has to balance two significant responsibilities, i.e., to keep inflation under control and to ensure the job market stays strong. “Given the strength in today’s economy, we have time to track developments patiently and allow the visibility to improve. … When it does, we are well-positioned to address whatever the economy will require,” he added.

Amidst rising fears regarding inflation, Trump administration officials like U.S. Treasury Secretary Scott Bessent have said that the steep tariffs, including 25% on imported steel and aluminum goods and over 50% on many Chinese goods, would not affect the U.S. consumer because some companies have opted not to raise prices and foreign producers would eat the costs. Speaking on the “Pod Force One” podcast, Bessent said that “all these predictions have just been baseless,” pointing to a rise in wages for hourly workers.

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