America starts to feel the squeeze: What we know about tariffs and inflation
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Illustration: Rebecca Zisser/Axios
Consumers and businesses are feeling the pinch from President Trump's trade war, with costs soaring for grocery staples and critical materials.
Why it matters: It's no longer anecdotal. The effects are difficult to ignore across key inflation indicators that might only get hotter in the months ahead.
The big picture: Global tariffs are putting upward pressure on costs. U.S. businesses are bearing the brunt, contrary to White House hopes that foreign suppliers would take some of the hit.
Between the lines: Import prices might cool if exporters around the globe were discounting goods to help ease the tariff burden for their U.S. buyers.
- But the opposite was the case last month: Import prices rose at the quickest pace this year, "casting further doubt on the 'foreigners will pay' talk from the administration," ING global economist James Knightley wrote this week.
Threat level: Wholesale prices rose at the fastest pace in three years last month — higher costs that might be passed on to the consumer down the line.
- The data "points to pipeline inflation that's likely to spill into consumer prices in the months ahead," says Michelle Green, a former Labor Department economist, now at corporate planning firm Board.
- Fresh and dry vegetable prices rose by almost 40 percent alone last month, the largest spike since inflation took off in 2022.
The intrigue: Mexico is a leading supplier of America's vegetables, imports now subject to 25% tariff rates — at least until the end of October..
- The Trump administration exempted U.S.-bound goods covered under the U.S.-Canada-Mexico trade agreement from tariffs, though the Trump 1.0-era deal largely does not apply to agricultural goods.
- The Consumer Price Index this week showed evidence of some tariff-related price hikes, though less so than was evident in June.
The latest: Chicago Fed President Austan Goolsbee warned this week that a wave of new tariff announcements for inputs, like semiconductors, as well as final goods could keep upward pressure on inflation.
- That would be a more bleak outcome than the one-and-done price hike some, including White House economists, predict.
- "I just want some more surety that that's not going to be a persistent inflation shock," Goolsbee said.
Of note: Customs and Border Protection said late Friday that 50% steel and aluminum tariffs would be expanded to more than 400 other goods, effective Monday.
What to watch: Persistent inflation could derail a series of interest rate cuts later this year expected by financial markets and demanded by Trump.
- Fed chair Jerome Powell is expected to speak on Friday in Jackson Hole, Wy. — a high-stakes speech that might signal what's ahead for rates as the central bank faces immense White House pressure.
