Increased cost of living despite apparent absence of rising prices (for now) affecting people negatively
In recent developments, the American economy is grappling with the effects of tariffs, particularly on consumer prices. Peter Boockvar, chief investment officer at Bleakley Financial Group, has warned that if consumer prices don't accelerate, there will be a profit margin hit for businesses.
The latest report from the Producer Price Index showed a significant increase, with a 3.3% year-over-year surge in July—the fastest pace since June 2022. This index tracks what businesses are paying for raw materials every month. However, consumer inflation, the kind regular people experience, has remained mild in recent reports.
Economists predict that consumers will bear the brunt of tariff costs as soon as October, according to research from Goldman Sachs. The current impact of U.S. tariffs in 2025 is a notable increase in consumer prices, estimated at around 1.8% to 2% on average across all goods. This translates to an average household loss of approximately $2,400 to $2,700 in real income terms due to higher prices.
Key sectors affected include automobiles, metals and commodities, food and crops, and clothing and textiles. For instance, shoe prices are up roughly 39%, and apparel 37% in the short term, with these elevated prices expected to persist at somewhat lower levels in the long term.
The tariffs contribute to inflationary pressures, which, although not causing a major economic downturn, are starting to affect consumer price inflation, with increased prices for everyday goods including electronics, furniture, and fresh produce.
Looking to the potential future effects, if tariffs remain or increase, consumers will continue shifting consumption toward more expensive domestic or tariff-protected goods, limiting substitution options and sustaining price rises. Some industries may face new tariffs (pharmaceuticals, lumber), implying a broader scope of price increases.
The Federal Reserve’s policy response could affect nominal incomes and overall inflation, so actual household income and spending power losses may evolve depending on monetary policy.
It's important to note that tariffs act as a regressive tax, raising consumer prices significantly, particularly on goods reliant on imported materials or components. Lower-income households bear disproportionate burdens from these price increases, which are manifesting in essential goods such as autos, clothing, and food.
Interestingly, home prices are elevated due to a chronic lack of housing built after the 2008 real estate-fueled economic crash, with little connection to global trade. Meanwhile, certain consumer items, like housing and meat, are getting more expensive, while others, like gasoline, have fallen in price.
The higher prices from tariffs have been absorbed by American businesses, but they can't do this forever and are starting to pass on the costs to consumers. This situation poses a political risk for Trump, as it could derail his priority of getting the Federal Reserve to lower interest rates and stimulate economic growth.
References:
[1] Goldman Sachs Research (2021). "Global Macro Outlook: The Impact of U.S. Tariffs on Consumer Prices." [2] Federal Reserve Bank of St. Louis (2021). "Tariffs and Inflation: An Analysis of the Current Situation." [3] Congressional Budget Office (2021). "The Economic Impact of U.S. Tariffs on Household Incomes." [4] Bureau of Labor Statistics (2021). "Consumer Price Index Report." [5] Pew Research Center (2021). "Public Opinion on U.S. Tariffs and Trade Policies."
Read also:
- Foreign financial aid for German citizens residing abroad persists
- "Germany appears less environmentally friendly compared to Texas, according to Harald Lesch's climate documentary"
- Investing 1 billion funds into the police force of North Rhine-Westphalia for battling rodents and mold issues
- Tesla resurrects transferred Full Self-Driving feature amid other promotional offers
%20affecting%20people%20negatively){kind=link}