Rising prices persist in the U.S., yet tariffs appear to have minimal influence on this trend.
In July 2021, consumer prices in the United States experienced a 0.5% month-over-month increase, contributing to a year-over-year rise of approximately 5.4%. This surge in inflation was influenced by a variety of factors, including tariffs imposed during the Trump administration, the Federal Reserve's monetary policy responses, and broader supply chain dynamics.
The Impact of Trump’s Tariffs
The tariffs implemented under former President Trump increased import costs, which economists argue tend to pass through to higher consumer prices with some delay. For instance, a 10% universal tariff, while the specific timeline is unspecified, contributed to inflationary pressure by raising costs on goods from countries like China and Canada. Initially, retailers' stocking behaviours masked some price increases, leading to a delay in visible effects in CPI data. Some energy prices decreased, partially offsetting tariff-driven inflation on other goods.
The Federal Reserve's Response
At the Federal Reserve’s July 2021 meeting, policymakers expressed concern about tariff-driven inflation risks potentially exceeding labour market risks. The Federal Open Market Committee (FOMC) opted to maintain benchmark interest rates steady, highlighting a delicate balancing act between controlling inflation and supporting employment. Some members dissented in favour of rate cuts due to labour market concerns, but the prevailing view prioritised inflation risk management, guided by inflation figures remaining elevated above the Fed’s target.
Effects on Consumer Prices
Inflation impacted various consumer goods and services unevenly. Shelter, motor vehicle maintenance, medical care services, and used car prices saw notable increases, while energy prices, including gasoline, showed some decline, partially offsetting overall inflation. The core CPI, which excludes food and energy, rose faster than headline CPI, signalling persistent inflation in other sectors. Consumers experienced higher prices in takeout, restaurants, and transportation services, consistent with tariffs raising import costs and supply chain disruptions exacerbating those increases. Monthly CPI increases moderated compared to earlier surges, reflecting some easing inflation pressures but still above ideal levels.
Over the past year, US consumer prices have risen by 2.7%. Companies like Procter & Gamble are planning to increase prices on about a quarter of their products by mid-single-digit percentages, while e.l.f. Beauty raised prices by a dollar on its entire product assortment as of 1 August. Clothing prices ticked up 0.1% in July, though they are still slightly cheaper than a year ago. Furniture prices leapt 0.9% in July and are 3.2% higher than a year earlier.
Economists predict that by fall, consumers will bear 67% of the tariff burden, while foreign exporters pay 25% and US companies handle 8%. Restaurant meals continued to get more expensive, rising 0.3% in July and 3.9% from a year earlier. Shoe prices jumped 1.4% from June to July, though they are still just 0.9% more expensive than a year ago.
In summary, Trump-era tariffs contributed to inflationary pressures by increasing import costs, which the Federal Reserve closely monitored in 2021 and beyond, maintaining cautious monetary policy to contain inflation while balancing economic growth and employment. Inflation in July 2021 was driven by a combination of these tariffs’ delayed effects, supply chain factors, and ongoing Fed policy decisions, resulting in broad-based price increases affecting consumers across multiple categories.
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