In May, the Consumer Price Index (CPI) in the United States increased by 2.4% year-on-year, marking the fourth consecutive month of being below expectations. Prices of durable goods such as automobiles and smartphones dropped, indicating that tariffs have had a limited impact on prices in the United States. However, analysts believe that there is still a significant possibility of inflation rates rising in the future.
According to the inflation report released by the U.S. Bureau of Labor Statistics on Wednesday, May saw a decrease of 3.2% in smartphone prices, 0.3% in clothing prices, and 0.2% in new car prices. On the other hand, toy prices saw an increase of 0.8% and sports equipment prices rose by 0.4%.
Brian Coulton, Chief Economist at Fitch Ratings, noted in a report that the buildup of inventory ahead of tariff increases could lead to a delay in price transmission. The significant uncertainty in U.S. trade policy may affect the speed at which businesses adjust their prices. However, the likelihood of core commodity inflation rates rising in the coming months remains high. Some companies have absorbed part of the tariff costs by lowering profit margins.
The report from the Bureau of Labor Statistics also showed that the inflation rate has been below expectations for the fourth consecutive month. In May, CPI increased by 2.4% year-on-year, compared to a previous value of 2.3%. The month-on-month increase was 0.1%, down from 0.2% in the previous month. The core CPI in May increased by 2.8% year-on-year and 0.1% month-on-month, both lower than market expectations. Excluding energy, service prices rose by 0.2%, showing a slower pace compared to the previous month due to a decrease in airfares and hotel accommodation expenses.
Commentary from Bloomberg suggests that businesses have indeed passed on tariffs. The tariff costs of goods most affected by Chinese imports are quickly being passed on, but consumer confidence in the future income outlook appears cautious and lacking in confidence, enough to offset the impacts of tariff pass-through.
Retailers like Walmart and Target have issued warnings of price increases, while automakers such as Ford and Subaru have also issued similar warnings. The Federal Reserve’s survey of economic activity last week indicated that prices in various regions across the United States have been rising at a “moderate” pace in recent weeks, with some areas expecting prices to rise “strongly, significantly, or substantially” in the future.
President Trump announced in April that the United States would impose a 34% equivalent tariff on China, triggering a tit-for-tat response from the Chinese side. As both sides escalated, the U.S. imposed tariffs of 145% on Chinese goods, while China levied 125% tariffs on U.S. goods.
On May 12th, an agreement was reached in Geneva to cancel most of the tariffs imposed during the recent trade war. However, the U.S. retained a 30% tariff on China, while China maintained a 10% tariff on U.S. goods.
This week, the U.S. and China held a new round of negotiations in London. Statements released by both sides on Tuesday evening indicated that they had reached a preliminary agreement framework, with tariff levels remaining unchanged.