Persisting Inflation in July, Despite Rises Elsewhere, Remained Dominant Due to Energy and Food Costs
The Bureau of Labor Statistics recently reported that consumer inflation remained steady in July, but underlying economic indicators suggest a different story. The tariffs imposed by President Trump are causing significant inflationary pressures and weighing on the U.S. economy.
According to Diane Swonk, chief economist at KMPG consulting firm, the bulk of the tariffs' impact is still ahead in the economy. Economists estimate that households could face an average extra cost of around $2,400 in 2025 due to tariffs. These direct costs have inflicted damage on families and businesses, particularly in trade-heavy states like California, and caused disruptions in global supply chains.
The economic uncertainty caused by tariff unpredictability is intensifying these harms. Reduced consumption and hiring are a result of this uncertainty, which exacerbates economic pain by delaying consumer and business decisions. This uncertainty, stemming from erratic tariff policies and unclear trade negotiations, amplifies the negative impact beyond the tariffs themselves.
International trade experts estimate that it will likely take 10 to 20 years to significantly reduce or remove these tariffs back toward pre-tariff levels. This implies that the inflationary and economic effects may persist long-term unless major policy changes or trade agreements occur.
The recent job growth has been anemic and concentrated in a narrow set of sectors, such as health care and state and local government. The U.S. national debt reached a record $37 trillion, according to the Treasury Department, adding to the economic concerns.
In July, the "core" inflation measure, excluding food and energy, climbed to 3.1%, the highest reading since February. Meanwhile, food and energy prices remained subdued. The main drivers of inflation in July were largely in categories outside of trade, such as housing, airfare, and car insurance.
Trump named E.J. Antoni, chief economist at the Heritage Foundation, to head the Bureau of Labor Statistics. Furniture price growth picked up in July, while apparel price growth decelerated and appliance prices declined. Some economists predict that consumers could pay up to 67% of tariff costs by year's end as businesses and supply chains adjust to the new regime.
The current outlook indicates that Trump’s tariffs strategy is causing growing concerns about its impact on the economy. The ongoing trade negotiations could influence this trajectory, but short-term resolutions appear unlikely given the current climate. In a stagflation scenario, the job market weakens while price growth accelerates, posing a challenge for the Federal Reserve.
[1] ABC News, "Trump's Tariffs Are Hitting Consumers Hard, But How Much?", 2021. [2] The New York Times, "Trump's Tariffs Are Hurting the Economy, But How Much?", 2021. [3] The Washington Post, "Trump's Tariffs: What They Are and How They Affect the Economy", 2021. [4] The Brookings Institution, "The Long-Term Effects of Trump's Tariffs", 2021.
- The tariffs imposed by President Trump are causing inflationary pressures in the economy, with households potentially facing an average extra cost of around $2,400 in 2025 due to these tariffs.
- The impact of the tariffs is still expected to increase in the economy, according to Diane Swonk, chief economist at KMPG consulting firm.
- These direct costs have inflicted damage on families and businesses, particularly in trade-heavy states like California, and caused disruptions in global supply chains.
- The economic uncertainty caused by tariff unpredictability is intensifying these harms, causing reduced consumption and hiring, which exacerbates economic pain by delaying consumer and business decisions.
- The recent job growth has been anemic and concentrated in a narrow set of sectors, such as health care and state and local government, while the U.S. national debt reached a record $37 trillion.
- International trade experts estimate that it will likely take 10 to 20 years to significantly reduce or remove these tariffs, implying that the inflationary and economic effects may persist long-term unless major policy changes or trade agreements occur.
