Did economists get it wrong – or is it still too early since tariffs operate with a lag? Either way, President Donald Trump’s sweeping global levies, which temporarily upended international trade flows in March and April, have yet to trigger inflation, and this is improving consumer sentiment and confidence across multiple surveys. All eyes will now be on the June data, and then July, and then August.
Tariffs Not Igniting Inflation
The May Consumer Price Index (CPI) was released on June 11, and the numbers ostensibly pleased the financial markets. According to the Bureau of Labor Statistics, the headline annual inflation rate rose by 0.1%, slightly below economists' expectations. Core inflation, a measure that strips out energy and food prices for their volatility, was unchanged at 2.8% for the third consecutive month. Core CPI also ticked up at a smaller-than-expected increment of 0.1%.
The Producer Price Index (PPI), a gauge of prices paid for goods and services by businesses and passed on to consumers, was next up to bat. Wholesale prices and core PPI edged up at a lower-than-expected rate of 0.1% in May. On a year-over-year basis, the PPI inched higher to 2.6%, and the core PPI slowed to 3%.
While not an earth-shattering metric, economists closely monitor the PPI because it can indicate potential pipeline inflation for consumers, as it occurs early in the supply chain.
Two additional inflation reports will be released this month: import and export prices, as well as the Federal Reserve's preferred personal consumption expenditure (PCE) price index. Early estimates signal a decline in trade prices and a modest rise in PCE inflation.
Recent developments have forced the public to adjust its inflation forecasts. The preliminary June University of Michigan Consumer Sentiment Index revealed that the one-year inflation outlook had tanked to 5.1% from 6.6%. Five-year inflation expectations were also trimmed to 4.1% from 4.2%. “Consumers appear to have settled somewhat from the shock of the extremely high tariffs announced in April and the policy volatility seen in the weeks that followed," said Joanne Hsu, the university's surveys of consumers director, in a statement.
A plethora of economic observers now say that tariff-driven inflation will likely appear in the hard data by July or August. Everyone will wait, twiddle their thumbs, and sing the classic 1930 George and Ira Gerhswin tune, "Bidin' My Time."
Letters Arriving in the Mail
President Trump told reporters that he would pen letters to US trading partners within the next two weeks, outlining country-specific tariff rates. "At a certain point, we’re just going to send letters out. And I think you understand that, saying this is the deal, you can take it or leave it,” Trump said at the John F. Kennedy Center for the Performing Arts in Washington, hours after announcing the second US-China trade ceasefire.
This comes about a week after White House Press Secretary Karoline Leavitt confirmed reports that US Trade Representative Jamieson Greer had mailed out letters, requesting that foreign officials present their final offers to the Trump administration ahead of the highly anticipated July 9 deadline.
So, what happens on July 9?
Crossing Off Calendar Dates
Shortly after the April 2 "Liberation Day" announcement at the Make America Wealthy Again event, Trump authorized a 90-day pause on reciprocal tariffs on virtually all trading partners, including the penguin-inhabited Heard and McDonald Islands. However, Treasury Secretary Scott Bessent informed lawmakers on the House Ways and Means Committee that the president would be open to extending the deadline to allow for more trade negotiations.
“It is highly likely that those countries – or trading blocs as is the case with the EU – who are negotiating in good faith, we will roll the date forward to continue the good-faith negotiations," Bessent said at a June 11 hearing. "If someone is not negotiating, then we will not."
It is time to watch the calendar and hold tight for the 90 deals in 90 days.
