First signs of tariffs' impact on inflation could appear in Wednesday's
consumer prices report
[June 11, 2025] By
CHRISTOPHER RUGABER and ANNE D'INNOCENZIO
WASHINGTON (AP) — U.S. inflation likely picked up a bit last month as
President Donald Trump's tariffs start to bite, but lower prices for gas
and possibly for air fares and used cars may limit the overall increase.
The government's inflation report, to be released Wednesday, is forecast
to show that consumer prices rose 2.5% in May compared with a year ago,
according to economists surveyed by data provider FactSet. That would be
the first increase in four months and up from 2.3% in April. Excluding
the volatile food and energy categories, core prices are projected to
have risen 2.9% in May from a year earlier, up from 2.8% in April.
Trump's tariffs are expected to contribute to the uptick by raising the
cost of some imports, including clothes, furniture, appliances, and
possibly new cars. Many retailers and some consumer products companies
have said they have plans to raise prices or have already done so to
cover the cost of the import duties.
On a monthly basis, prices are expected to have moved up 0.2% from April
to May, while core prices are forecast to have increased 0.3%. At that
pace, core prices would rise much faster than the Federal Reserve's 2%
target. Economists and the inflation-fighters at the Fed focus on core
inflation because it often provides a better sense of where inflation is
headed.
Inflation has cooled in the past year and, excluding the impact of
tariffs, economists say it would be on track to return to the Fed's
target, which would allow the central bank to cut its key interest
rates. Yet core prices have been more stubborn and were stuck between
3.2% and 3.4% for nearly a year until February, when they started to
decline a bit.
Last week, the Labor Department's Bureau of Labor Statistics, which
compiles the inflation data, said it is reducing the amount of data it
collects for each inflation report. Economists have expressed concern
about the cutback, and while it isn't clear how sharp the reduction is,
most analysts say it is likely to have a minor impact. Still, any
reduction in data collection could make the figures more volatile.
Nearly all economists expect Trump's duties will make many things more
expensive in the second half of this year, including cars and groceries,
though by how much is still uncertain. Trump has slapped 30% tariffs on
all imports from China, plus a 10% baseline tariff on imported goods
from every other country, and 50% import taxes on steel and aluminum.
Given the potential for higher prices in the coming months, Fed Chair
Jerome Powell and other Fed officials have made clear they will keep
their key rate unchanged until they have a better sense of how tariffs
will affect the economy.
The full impact of the tariffs likely won't be felt until the second
half of the year, analysts say, even though many tariffs have been in
place, in one form or another, since March and April. There are several
reasons it can take months for the duties to fully pass through into
retail prices.
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 To begin with, many companies tried
to beat the clock by bringing in foreign goods before Trump’s
tariffs took effect, producing a flood of imports in March. As a
result, they have stockpiled goods in warehouses that weren't hit by
tariffs and so don't have to raise prices yet.
Many companies also held off on hiking prices during the chaos of
April and May, when Trump announced sweeping tariffs on imports from
nearly 60 countries, only to put them on hold a week later. He also
ramped up duties on China to 145%, essentially cutting off trade
with the United States' third-largest trading partner. Imports fell
sharply in April as a result. The U.S. and China last month agreed
to lower duties, with the U.S. now taxing Chinese imports 30%.
For many firms, it wasn't worth it to raise prices until they had a
better sense of where tariffs would settle. It's possible some
duties could fall further if the Trump administration is able to
reach trade deals in negotiations with China, the European Union,
Japan and other countries.
Still, Bryan Eshelman, a partner and managing director at consulting
firm AlixPartners, said higher prices “are coming.”
Eshelman expects that shoppers will start feeling the impact in
July, and predicts prices for back-to-school items like clothing and
backpacks could go up anywhere from 5% to 15%. Retailers may add
surcharges tied to higher tariffs costs at the cash register
starting in September, he said.
“I think that that’s something that retailers are going to be loathe
to pull out and do. And so I think they will wait to see how things
unfold, ” he said.
Most imported goods are actually parts or raw materials for larger
products, such as the steel and aluminum goods now facing 50%
duties. It will take time for those costs to filter through the
supply chain and affect prices.
Some stores, however, have already said they will implement higher
prices, including Best Buy, Walmart and Lululemon.
It was only last month when Trump ripped into Walmart after the
nation’s largest retailer boldly warned that prices are already
starting to go up on items like bananas. Walmart’s chief financial
officer John David Rainey told The Associated Press that a car seat
that currently sells for $350 at Walmart will likely cost customers
another $100.
Rainey also told analysts at an Oppenheimer investor conference on
Monday that for some items, Walmart will reduce inventory by as much
as 20% because it expects higher prices will reduce demand, and it
doesn’t want to be stuck with leftover inventory.
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