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Economy

Rising prices in the US under pressure from tariffs

17:30

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The impact of tariffs imposed by former President Donald Trump is now being felt by American consumers, as they face a second consecutive rise in consumer prices, according to the latest index released today.

The Consumer Price Index (CPI), which tracks inflation, rose by 2.7% year-over-year in June, up from 2.4% in May. While this acceleration in inflation aligns with analysts' expectations, it marks the second month of rising prices after a period when inflation had previously neared the Federal Reserve’s target of 2% annual growth.

On a monthly basis, consumer prices rose by 0.3% in June, up from just 0.1% in May, largely due to a surge in energy prices. This uptick was in line with analyst forecasts. Excluding the more volatile food and energy sectors, the CPI rose by 0.2% in June compared to May, and saw a 2.9% increase year-over-year.

In response to the data, Democratic Senator Elizabeth Warren criticized those who claim the trade wars initiated by Trump have not had an impact. In a statement, Warren urged these individuals to "look at today's data" and warned about families being burdened by rising costs as President Biden's policies make matters worse. President Biden, on the other hand, dismissed concerns about inflation, calling it "very low" on his social media platform Truth and urging the Federal Reserve to lower interest rates by three percentage points to "save $1 trillion annually."

June was also marked by tensions between Israel and Iran, which led to a sharp spike in oil prices, and these prices have remained higher than before the missile exchanges between the two nations. The increase in energy costs also extended to electricity and gas, both of which saw significant price hikes from May to June. Americans are also facing a slight increase in food prices and healthcare services, although housing costs, which have been a major driver of persistent inflation in recent months, showed signs of easing.

New Tariffs on the Horizon

Looking ahead, experts predict a further increase in consumer prices due to existing and upcoming tariffs. Samuel Tombs, Chief Economist at Pantheon, warned in a note that prices could rise by another percentage point, especially as the effects of tariffs imposed in April begin to take hold. These include a 10% tariff on nearly all imports to the US, with a possible 25% tariff on automobiles and auto parts, and even 50% on steel and aluminum.

In addition, other industries are also expected to feel the pinch, as procedures have been launched targeting pharmaceuticals, semiconductors, drones, and polycrystalline silicon, which is used in solar panels and semiconductors. Since early July, around 20 countries have received notices from the White House announcing new tariffs of between 20% and 40% on most products, with Brazilian goods facing a 50% tariff. These taxes are set to take effect on August 1st.

President Biden has also announced his intentions to impose 30% tariffs on European and Mexican products, two of the US's largest trading partners.

Economists have raised concerns about the inflationary risks these tariffs pose. However, they believe that the Federal Reserve will continue its cautious approach to monetary policy. Despite rising inflation, the Federal Reserve has kept its interest rates unchanged since the beginning of the year. Analysts anticipate that this trend will continue during the next Fed meeting scheduled for the end of the month, according to CME's FedWatch tool. The current US interest rates are between 4.25% and 4.50% since December. Ryan Sweet, Chief Economist at Oxford Economics, suggests that the new inflation data will likely keep the Fed on the sidelines unless the labor market experiences an unexpected downturn.