President Trump’s tariffs have led to less price increase in the U.S. than expected, but inflation continues to rise, complicating potential rate cuts by the Federal Reserve. The consumer price index showed an annual increase of 2.7% in July, slightly below forecasts. Capital Economics suggests that while tariffs might impact U.S. inflation, their effect on global prices may be slightly disinflationary. Most countries have not retaliated with tariffs, and reductions on U.S. imports may contribute to lower global price pressures.
"We doubt that US tariffs will significantly affect inflation in the rest of the world, but if anything, the effect could be mildly disinflationary," said Simon MacAdam and Ariane Curtis.
In the U.S., tariffs haven't raised prices as much as anticipated, so far, but inflation is still ticking higher, representing an obstacle for highly anticipated rate cuts from the Federal Reserve.
The latest consumer price index (CPI) increased at an annual rate of 2.7% in July, below forecasts for a 2.8% gain and flat versus June's pace.
The hit to global demand should dampen price pressures, at the margin, while a redirection of Chinese exports away from the US to other markets could reduce import prices.
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