No Tariff-Led Inflation in June Prices

Tariffs have not pushed up consumer prices.

The consumer price index ticked up just 0.1 percent in June, the Department of Labor said Thursday. Compared with a year ago, prices rose just 1.6 percent, a deceleration of price gains from May’s 1.8 percent. After taking out volatile food and energy prices, inflation ran at 0.3 percent for the month and 2.1 percent for the year, both a tick above economist expectations.

The Federal Reserve’s monetary policy committee says jt targets inflation at the rate of 2 percent. But the index the Fed uses, called the personal consumption expenditure index, runs about a half a point or so below the better-known consumer price index. Which means that inflation is likely running below the Fed’s target.

In other words, even with the tariffs the Trump administration has imposed, consumer prices are rising by less than the Fed thinks is consistent with price stability. Its theoretically possible prices would be rising at an even slower rate than they are if the tariffs were not in place. But that would only mean the Fed would have to work harder to push them back toward the target.

The data defy the dire predictions of experts who forecast consumers would foot the bill for tariffs.

• “Trump’s trade war may soon hit consumers’ wallets and paychecks,” NBC News declared in a headline last year.
• “Tariffs will surely lead to higher prices for imported goods and, to a lesser extent, prices for non-imported goods that use imported materials,” the University of Pennsylvania’s business school Wharton reported.
• “Tariffs are about to hit consumers, and it won’t be pretty,” CNBC claimed.
• “Trade restrictions, by their nature, result in price increases for the goods in question. If the price of steel and aluminum goes up, manufacturers will be forced to pass those costs onto American consumers,” wrote Tori K. Whiting, the Jay Van Andel Trade Economist at the Heritage Foundation’s Roe Institute for Economic Policy Studies.

Commerce Secretary Wilbur Ross, however, said all of these predictions of higher prices were wrong. To the contrary, Ross argued tariffs would have little to no effect on U.S. consumers. He held up cans of Campbell’s soup and Budweiser beer to illustrate his point that the metals input into most consumer prices was very low and unlikely to rise.

When prices did not rise as predicted, the critics did not back off their claims. Many just moved the time frame, arguing that the forecast price increases were just taking time to move through the economy. But with each passing month, that an increasingly absurd position.

Soup, Beer, Veggies, Cars, and Trucks

Take the prices of soup and beer, Secretary Ross’s examples.  The price of soup is up 0.3 percent compared with a year ago. The price of beer consumed at home is up just 1.7 percent.

Of course, not all soup is canned. Beer is also sold in bottles. The government doesn’t track canned beer and canned soup separately. So it is possible that canned variations have seen more price inflation, offset by price declines in bottled beer and soup in cardboard containers. But that’s largely irrelevant from the consumers perspective since shoppers can easily just switch to the cheaper category.

There’s no upward pricing pressure on beer consumed in bars and restaurants, which is notable because the price of beer kegs reportedly rose due to the aluminum tariffs. Beer consumed outside of the home is up just 0.8 percent compared with a year ago.

Prices of canned fruits and vegetables, another category of consumer goods that was widely predicted to see prices rise because of increased aluminum costs, are up by 3.9 percent, about double the overall price increase. But very little of this is due to the price of aluminum. Instead, it’s what’s in the cans that is driving the price. Fresh vegetable prices are up 4.1 percent and were up as much 7.2 percent earlier this year (fresh lettuce is up a stunning 9.1 percent), so canned vegetables are up 5.3 percent. Fresh fruit prices are up 1.9 percent, so canned fruit prices are up just 2.0 percent.

Car and truck prices are perhaps the most important consumer item that tariff opponents claimed would be pushed up by the metals tariffs. But these have hardly moved. Compared with a year ago, car prices are up just 0.9 percent. The price of new trucks is 0.3 percent higher than a year ago.

Televisions, Computers, and Appliances

Many of the categories of consumer goods that are largely manufactured abroad also saw steep declines, defying predictions that the China tariffs implemented last year would weigh on consumers.

Tools and hardware were often cited by those promoting the “tariffs are taxes on consumers” narrative. But prices on these are up just 1.6 percent compared with a year ago.

Outside of Breitbart News there has been very little reporting on the crash in the price of televisions. In June, television prices fell by another 2.4 percent. This is the eleventh consecutive monthly decline for televisions. Compared with a year ago, television prices are off 19.7 percent. This steep decline may reflect foreign manufacturers competing with each other for market share by dumping televisions on the U.S. market. (There are no real domestic manufacturers for anti-dumping regulations to protect so it is unlikely the Commerce Department will take any action here.)

The price of computers, digital homes assistants, and phones were predicted to see upward pressure from tariffs on China. But computers and related hardware prices are down 5.9 percent compared with last year. Phone prices fell again, for at least the tenth consecutive month, and are now down 14 percent compared with a year ago. Note that mobile phones were excluded from the first two rounds of China tariffs.

We’re now over a year into the anti-dumping tariffs imposed in January of last year on washing machines. These were intended to drive up the price from artificially depressed levels and accomplished that goal last year. Those washing machine price gains, however, have faded. Laundry equipment is now down 4.0 percent compared with a year ago, when prices were reflecting that initial boost. Prices declined on a month to month basis in May and June, so some of the decline is in absolute terms rather than just reflecting how high prices got last year.

Made in China 2018

The tariffs on Chinese-made goods also do not seem to have had much of an effect on consumer prices. Initially, the Trump administration applied a 25 percent tariff to $50 billion of imports from China that was largely focused on technology goods. In late September, however, the China tariffs were broadened to impose a 10 percent tax on an additional $2o0 billion and a wider array of consumer goods. In May, that 10 percent tariff rose to 25 percent.

It’s probably too early to tell if the 25 percent tariff will create additional price pressures. But our experience with the 10 percent tariff level implies that these could be very minimal.

Appliance prices are up just 2.6 percent compared with a year ago. The narrower “major appliance” category, which was pushed up by the sharp rise in washing machines, saw a second consecutive monthly decline of 0.2 percent. Compared with a year ago, prices are now up just 2.9 percent, a huge deceleration from February’s 11.1 percent gain that had Goldman Sachs and other claiming consumers were being squeezed by tariffs.

The prices of furniture and bedding, one of the largest categories of China-made imports, and are up 3.1 percent annually. Toys, another big China import category, saw prices fall by a staggering 7.6 percent. Sports equipment prices are down 1.1 percent. Bicycles and other sports vehicles are up just 1.9 percent.

Clothing prices are down 1.3 percent compared with a year ago. Auto parts and equipment prices are up just 1.9 percent compared with a year ago.

Once again, the consumer price data has largely demolished the notion that tariffs are squeezing consumers. Phones, computers, and especially televisions have plummeted in price. Beer and cars show no tariff pressure at all. Vegetable soup is pricier because vegetables cost more. Baseball mitts and other sports equipment are cheaper. Appliance prices are up but not much higher than prices in the overall economy.

That does not mean that prices will remain low or tariffs will never push prices up. But it demonstrates that even after over a year of tariffs, prices on consumers are not rising.

The low prices may indicate that the burdens of tariffs are falling on foreign producers and on intermediate goods producers. This can happen when export prices fall in reaction to tariffs, either because manufacturers seek to maintain market share by discounting their goods or because foreign currencies decline against the dollar.

The data is increasingly embarrassing for the Federal Reserve economists who claimed in two flawed studies that consumers were paying higher prices for goods subject to tariffs on steel, aluminum, or Chinese imports.