Inflation rose by 0.3 percent across all sectors in June, marking the initial impact of tariffs introduced under President Trump on consumer prices. Ryan Young, a senior economist at the Competitive Enterprise Institute (CEI), noted that the Federal Reserve is likely to continue its efforts to address rising prices and a shrinking economy.
“It begins. Tariffs raise prices, and despite companies’ best efforts, they are showing up in consumer prices,” Young stated.
Young described the June data as “worrying but not disastrous” and predicted similar trends for July. He warned that August could see significant impacts if Trump’s major tariffs are implemented on August 1. These include tariffs announced in April, such as the Liberation Day tariffs and a 50 percent tariff on copper.
Young explained that there are three main reasons why it took three months for tariffs to appear in inflation data. Firstly, both companies and consumers stockpiled imports before new tariffs took effect, resulting in record-high imports during the first quarter of this year. Companies have been working through this inventory and now face restocking at higher tariff prices.
Secondly, President Trump has repeatedly delayed his largest tariffs. Thirdly, most U.S. imports are not consumer goods but inputs used by manufacturers like raw materials and machinery components. These price increases take time to filter through supply chains down to consumer goods.
“Federal Reserve Chair Jerome Powell’s job remains difficult,” Young said. “Tariffs don’t just raise prices; they slow the economy.”
He noted that while typically the Fed would lower interest rates to stimulate growth, doing so could increase inflation already heightened by tariffs. Conversely, raising interest rates might combat inflation but further slow an already shrinking economy.
Young highlighted that although tariffs do not directly affect money supply and thus are not strictly inflationary, they still lead to higher prices due to their scope and scale impacting CPI and PCE inflation indicators.
“President Trump could help solve rising prices and economic contraction by permanently removing his tariffs,” Young suggested but added skepticism about such actions given Trump’s tendency to blame others while threatening Fed independence.
