Name: Economists Explain Why Trump’s Tariffs Haven’t Sparked Inflation Yet
Uploaded: 2025-06-12T02:35:00Z
Duration: 4 min 53 s
Description: Consumer prices rose 2.4% year-over-year in May, defying fears that President Trump’s tariffs could lead to higher inflation. Here’s why economists think that will change in the coming months.

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Consumer prices rose 2.4% year-over-year in May, defying fears that President Trump’s tariffs could lead to higher inflation. Here’s why economists think that will change in the coming months. Photo Illustration: JJ Lin

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Consumer prices rose 2.4% year-over-year in May, defying fears that President Trump’s tariffs could lead to higher inflation. Here’s why economists think that will change in the coming months.

Economists Explain Why Trump’s Tariffs Haven’t Sparked Inflation Yet 

Narrator: Economists and businesses have warned for months that President Trump's steeped tariffs would lead to higher prices. So far, the evidence doesn't suggest that's happening. Inflation remained tame in May, raising questions over when exactly higher prices will take hold.

Across the board, this was a much cooler than expected inflation report for the month of May. It deepens the mystery over what's happening in the economy right now.

We're at this point still not seeing a lot of tariff impacts.

All the things we watch in terms of what's gonna happen with consumer prices, all of them are still pointing in the same direction, which is these prices will move higher.

Narrator: Here's why economists think Trump's tariffs have had a muted effect on inflation so far and what to expect in the months ahead. In May, consumer prices rose 2.4% year over year. Month over month prices rose .1%, which is less than economists anticipated.

It doesn't mean that we aren't going to see the increases in prices, but it does suggest that there's something else going on here in the economy right now. What are the possible reasons that we're not seeing this? One is just that demand isn't strong enough in the economy right now for businesses to be able to push along these increases in prices from tariffs. And then the other theory is we just have to give it more time. Businesses ordered a lot of inventories in anticipation of tariff increases, so it's possible that all that front running has allowed them to wait on raising prices to consumers.

Narrator: Prices did rise for some tariff exposed goods during the month, like appliances, car parts, and audio equipment. But for others, like new cars and apparel, prices actually went down.

There's a little game of musical chairs happening right now with which items are seeing tariff pass through. So a lot of stuff that we're, that really picked up in price in April, they actually reversed course and fell in May. So that's one element of the story. And the other is really on the auto side. So new car prices fell this month, which is a bit of a surprise. We know automakers have begun to raise prices. Ford has already talked about increasing prices on some new models. So that'll really start to show up in the June and July CPI.

It does take a long time for the tariffs to pass through. Generally what we found is it takes really three months after the implementation of the tariffs before you start to see notable impacts.

Narrator: Trump's proposed tariffs remain a wild card. The president has exempted some shipments from the levies and agreed to lower lofty tariff rates against China until August, as the two countries sort through a trade deal.

There are cracks underneath the economy right now. One is that the labor market is just in this funky equilibrium where businesses are not hiring as much, but they're not firing either. Second risk underneath the surface right now is just that consumers aren't as strong as they've been over the past couple years. You see higher levels of delinquencies on credit cards and consumer loans.

The ability of firms to increase prices is definitely less than what we were seeing in say 2021 and 2022. The large amount of excess saving that households had built up during the pandemic is mostly spent out at this point. That said, these price increases are so broad that you would expect some impact, but we wouldn't expect inflation to get up to anywhere near the levels that we saw during the pandemic.

And I don't know that companies typically tend to continue to really absorb it in margin for long periods of time. You could see, for example, second quarter, maybe they are taking some of this price increase. You know what they're paying for imports in the margin, but that's just not gonna last. Even Walmart has said that, hey, in late May and early June, we're gonna start to raise prices. But I think it's pretty safe to say that if Walmart has to raise prices, then other retailers will probably follow suit.

Narrator: Most economists still expect tariffs to cause prices to rise. The question now is when.

I expect core CPI to move up from 2.8 to probably around 3.7% by the end of this year. If the China 30% tariffs become the baseline, if that's what we're gonna see for the rest of this year, then I think we probably are going to stick closer to sort of about a 3% type numbers.

So we're looking for headline CPI inflation, which covers including the food and energy components, moving up to about 3.5% core PCE inflation, which is kind of the Fed's preferred gauge that they follow. That also moving up to about three point a half percent.

So what we're watching in the next few months is, do the tariff increases show up? If we get through the summer and the price increases are mild, it allows the Fed to focus more on risks of a softer labor market, and it allows everybody to just feel a little bit more comfortable. All of these risks about higher prices, weaker growth, so-called stagflation, maybe those aren't going to come to pass.

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Economists Explain Why Trump’s Tariffs Haven’t Sparked Inflation Yet

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