How have Trump’s tariffs impacted consumer inflation?
Just days after his Jan. 20 inauguration, President Trump launched an initial salvo of tariffs against Mexico, Canada and China – America’s three largest trading partners. According to data from the U.S. Census Bureau, in 2024, these three countries accounted for 41.5% of all foreign goods imported into the U.S.
On Apr. 5, in what he named Liberation Day, Trump further imposed a global baseline 10% tariff on nearly all imports into the U.S. Many countries, however, were targeted with higher tariff rates between 11%-50%.
Trump’s goal was to even the playing field in what he argued was a long history of unfair trading practices, tariffs, quotas and restrictions foreign nations had imposed on U.S. manufactured goods. Trump has also used the tariffs as leverage to renegotiate new trade agreements and to influence foreign nations’ geopolitical policy decisions.
Since Trump’s tariffs took effect, there’s been plenty of discussion on their potential impact on consumer prices. One of the initial concerns was that tariffs would once again send inflation soaring higher. It’s an understandable and sensitive issue for most Americans. The nation is still recovering from its worst inflation crisis in nearly a half century. In February 2021, the Consumer Price Index (CPI) reported inflation at just 1.7%. 16 months later, in June 2022, inflation had surged to a 42-year high of 9%. As of today, inflation has yet to return to the Federal Reserve’s target rate of 2%.
The U.S. has had an extensive list of tariffs imposed on many foreign goods for the past 10-11 months. But a legitimate question is, where is inflation currently at right now?
There are a number of different benchmarks Wall Street and economists use to measure inflation. Two of the more heavily used are the CPI and the Personal Consumption Expenditures Index (PCE). Both of these are produced and reported by the U.S. Department of Labor. Most of the time, their results are pretty close to one another.
In January, before Trump’s tariffs went into effect, the CPI reported inflation at 3%. Today, the CPI reports inflation has fallen to 2.7%. Core CPI, which strips out the more volatile and seasonal food and energy prices, was reported at 3.3% in January. Today, core CPI has fallen to 2.6%.
In January, the PCE reported inflation at 2.6%. Today, according to the PCE, inflation has increased slightly to 2.8%. Finally, core PCE, which excludes food and energy prices, reported inflation at 2.8% in January. Today, core PCE remains unchanged at 2.8%.
When you look at all the various measures of inflation, it is still at about the same level now as it was before the tariffs went into effect. In some cases, it’s actually lower.
But what can consumers expect in 2026? At its December meeting, the Federal Reserve lowered its inflation forecast for next year. The Fed now sees inflation declining from its current rate of around 3% to a level near 2.5%. By 2027, it sees inflation further declining to its ideal target rate of around 2%.
Trump’s tariffs and trade disputes will likely remain a hot topic of debate. It’s understandable given the scope and size of the tariffs imposed, especially on our nation’s largest trading partners. But so far, at least, inflation has been kept in check. Moreover, the Fed’s projections that inflation will further decline over the next two years has eased concerns of the potential impact to the U.S. economy.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
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