Weekly Updates
Weekly Updates
- US President Trump dramatically increased US consumer taxes. How quickly will this increase consumer prices? Trade taxes are levied early in the supply chain (which is why every 10ppt increase in tariffs typically means a 4ppt increase in consumer prices).
- Fresh food does not last long, meaning inventory has to constantly change. Food prices thus respond quickly to tariffs. Unsurprisingly, a high proportion of US fresh food imports come from Mexico and Canada (e.g., nearly 80% of fresh vegetable imports). These are exempt from tariffs, blunting the speed of inflation.
- Some companies have stockpiled inventory in anticipation of tariffs, possibly slowing price increases. Overall, however, US manufacturers and wholesalers have inventory:sales ratios similar to 2018. That suggests only a modest delay before price increases start to show up. Some companies may also have begun increasing prices in anticipation of tariffs.
- Retailers generally have a lower inventory:sales ratio than in 2018, suggesting that once prices rise higher in the supply chain, the effect will pass through to consumers more quickly. Retailers may believe consumers are more accepting of inflation than in 2018, speeding price increases and profit-led inflation. With awareness of the tariffs increasing, US consumers are likely to blame any price increase, whatever the reason, on Trump’s trade taxes.
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