Tariffs, Inflation, and Uncertainty: What’s Really Going On?

Lisa Mailhot  |  May 23, 2025

Buyers

Woman studying a receipt at her desk beside a laptop and calculator.

Woman studying a receipt at her desk beside a laptop and calculator.

 

April’s inflation data told a surprising story: minimal price growth, despite widespread expectations that tariffs would stoke inflation. “Many economists have forecast that President Donald Trump’s imposition of tariffs would, by driving up the cost of imports, revive inflation.” However, “the rate of price increases has remained subdued thus far,” raising a key question: is this just a temporary reprieve?

Some analysts warn that “it will take time for supply-chain disruptions to work their way through inventories and be felt by consumers in the form of shortages and price hikes.” This lag echoes the COVID-19 supply shocks, with one expert stating, “The [current] drop-off in trade is even more severe than the pandemic.”

Tariffs Are Real—but So Are Offsets

According to Yale University’s Budget Lab, the existing tariffs would increase prices by “about 2.3 percent, equal to a loss of purchasing power of $3,800 per household.” But April saw President Donald Trump entering trade negotiations, even striking a deal with China on May 12 to temporarily reduce tariffs—potentially softening the blow.

Still, some retailers, like Walmart, are expected to pass costs onto consumers. Trump responded directly, declaring that companies should “‘EAT THE TARIFFS,’ and not charge valued customers ANYTHING.”

A Cooling Economy and Mixed Signals

“The economy has been gradually cooling, affecting both the labor market and inflation rates,” noted Bankrate analyst Stephen Kates. He emphasized slowing wage growth, declining prices for gas and groceries, and a moderation in housing costs.

Despite this, “I anticipate inflation will peak between 3 percent and 4 percent over the next year,” Kates said, acknowledging a likely increase—but nothing like the surges seen in 2022. Surveys show businesses intend to hike prices by summer, though consumer pushback may force them to absorb some costs.

A Monetary Perspective on Inflation

Some economists argue the tariff debate misses the bigger picture. “All the talk about tariffs and inflation is misguided,” said Steve Hanke of Johns Hopkins University. “Inflation is always and everywhere a monetary phenomenon.”

With U.S. money supply growth “anemic” since 2022, Hanke predicts inflation could fall below the Fed’s 2 percent target by year’s end.

Person reviewing an open booklet and loose papers at a table.

 

America’s Import Reality: Less Than Expected

A surprising insight: imports accounted for only “about 14 percent of U.S. GDP in 2024,” making the U.S. a “relatively closed economy.” Even products labeled “Made in China” often include significant domestic costs. For consumer goods, just “9 percent of the retail price is due to import content,” cushioning the impact of tariffs on overall inflation.

The Fed’s Measured Response

The Federal Reserve is playing it cautious. As Vice Chair Philip Jefferson explained, inflation in services is easing, though goods inflation has nudged up. “Whether tariffs create persistent upward pressure on inflation will depend on how trade policy is implemented, the pass-through to consumer prices, the reaction of supply chains, and the performance of the economy.”

Currently, the Fed’s federal funds rate is being held at 4.25–4.50 percent, with a rate cut not expected until September.

The Bottomline

America's inflation story is more complex than tariffs alone. With contrasting expert opinions, global negotiations, and fluctuating market conditions, the future remains uncertain. But one thing is clear: understanding these dynamics is crucial—especially if you’re planning a move or investment in a region like Orange County. Thinking about relocating? Let’s connect and navigate these economic shifts together to ensure you’re making the smartest move possible.

 

 

Reference: Stocklin, K. (2025, May 23). Tariffs haven’t yet triggered inflation, and economists are at odds as to what’s next. The Epoch Times.

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