Ever since sweeping new tariffs started to take effect this year, economists like me have been cautioning that it’s only a matter of time before those costs show up in the hard economic data.
On Wednesday, buried deep in an otherwise tame consumer price index report, the impact of the tariffs began to appear.
In a range of categories where goods have been subject to tariffs like the 25% levy on steel and aluminum, prices increased significantly.
Consider canned vegetables. That standard food item advanced by an outsized 2.6% on the month, and was a reminder that many mundane products, like a can of green beans, rely on steel.
Other areas of the CPI report showed early signs of the tariffs’ impact. Perishable imports like bananas and roasted coffee, which are not grown in the continental U.S., are subject to tariffs now. Bananas rose by 3.34% on the month and roasted coffee by 1.8%.
To put the increase in coffee in perspective, that 1.8% translates to a $950 million increase in costs for that industry.
Just as interesting was the 4.3% increase in steel-dependent major appliances, which was driven by the 2.3% rise in the cost of laundry equipment.
This gain in appliance prices mirrors what happened during the 2018-20 round of import taxes, when the cost of imported washing machines surged.
Read more of RSM’s insights on the economy and the middle market.
So as one gets the sense of how the initial stage of tariffs is working its way through the economy, it is natural to think about inflation expectations and if this episode will prove, well… transitory?
In the washing machine example from a few years ago, the cost of dryers also increased, even though they were not subject to tariffs.
This time around, if inflation proves to be transitory, then the Federal Reserve may cut its policy rate later this year.
But if consumers push their own inflation expectations higher because of short-term dislocations in the price of food at home or other goods, then it’s going to be some time before the Fed cuts rates.
