Tariff Time Bomb Is Inflation About to Explode?

Where’s the Inflation From Tariffs? Just Wait, Economists Say

The connection between tariffs and rising consumer prices is a long-held belief among economists, predating even President Trump's arrival in the White House. The basic premise is simple: when tariffs are imposed on imported goods, the cost of those goods increases, ultimately impacting the prices consumers pay.

During Mr. Trump's first term, tariffs on Chinese goods did lead to price increases. However, these increases didn't translate into a significant surge in overall inflation. Now, with substantially larger and more widespread tariffs in place, forecasters have been anticipating a more pronounced inflationary effect for months.

This week's inflation data, however, presented a surprising twist. Inflationary pressures remained more subdued than many economists had predicted, leading to an uncomfortable question: Are our predictions wrong?

For now, economists are standing firm, arguing that the impact of tariffs is still unfolding. The key takeaways are:

• Tariffs are affecting prices: It's not that tariffs have no impact. They do.
• Magnitude is the issue: The current impact isn't yet substantial enough to significantly move the needle on broad inflation measures like the Consumer Price Index (CPI).
• The Summer Effect: Many economists believe the real impact of these tariffs will become much more apparent in the coming months, particularly this summer.

Several factors could be contributing to the delayed impact. Companies may be absorbing some of the tariff costs to remain competitive, or existing supply chains may be masking the initial effects. However, these strategies are unlikely to be sustainable in the long run. As companies adjust to the new tariff landscape, they will likely pass on the increased costs to consumers.

The Potential Impact: If economists are correct, we could see a noticeable uptick in inflation this summer, impacting a wide range of consumer goods. This could lead to:

1. Increased pressure on household budgets.
2. Potential adjustments in monetary policy by the Federal Reserve.
3. Renewed debate about the effectiveness and consequences of tariffs.

While the immediate inflationary impact of the tariffs may be less pronounced than initially anticipated, economists remain confident that their effects will eventually be felt. The summer months will be crucial in determining whether these predictions hold true and the extent to which tariffs ultimately contribute to inflation. It's a waiting game, and all eyes are on the economic data as it unfolds. Only time will tell if the predicted inflationary wave will finally materialize, reshaping the economic landscape and impacting consumers' wallets. The next few months promise to be a revealing chapter in this ongoing economic narrative.

Source: https://www.nytimes.com/2025/06/13/business/economy/tariff-trade-war-inflation.html