Tariff Inflation: Digging Deeper into the Data

Inflationary Pressures from Tariffs

• 📈 Tariffs are showing modestly higher inflation in headlines, but deeper data reveals more significant price increases in specific categories.
• 💡 Categories like women's dresses, tools, hardware, and major appliances have seen price increases ranging from 4.8% to 10.4% between January and July.
• ⚠️ A key concern is whether these price increases, initially linked to tariffs, are bleeding into other areas of the economy.

Reversals in Price Trends

• 📉 Analysis shows stark reversals in price trends for imported goods, with categories like tools and appliances heading down before a reversal upwards, likely linked to tariffs.
• 📊 52% of 82 items in the core basket are up more than 3%, a sign previously associated with persistent pandemic inflation.
• ❓ The big question is whether this is starting to move into service inflation, with auto repair being a potential indicator.

Offsets and Market Reactions

• ⚡ While some prices are falling, acting as an offset to tariffs, these may not be sufficient to overcome other inflationary pressures.
• 📉 Yesterday's CPI report showed energy prices down 1.1% and food at home down 0.1%, but core commodities and core services were up.
• 🎢 The stock market appears to be trading as if the debate between persistent inflation and benign outcomes is settled, but some warn that inflation could manifest over time.

Understanding Tariff Costs

• 🗣️ A discussion arises on whether foreign countries or importers are absorbing the majority of tariff costs.
• 📊 Goldman Sachs suggests it could be up to 60%, but this includes wholesalers and retailers.
• 🔍 Import prices data will be crucial for understanding who is truly bearing the cost of tariffs.
• 💰 The ability of suppliers to absorb extra costs is questioned, suggesting that corporate margins might play a role in how tariffs are passed on.