The Focus This Week: The Tariff Effect
Tariffs, tariffs, tariffs. Nearly every major firm is talking about them – 93% of S&P 500 companies have mentioned tariffs on their latest quarterly calls, and 87% have talked about the uncertainty they’ve created for the outlook. When Walmart throws open its books this week and gets into the details, it’s what folks will be listening for. With import taxes threatening to jack up the costs of almost everything Americans buy, all the big questions are about the duties, margins, and what it means for consumer prices.
For a minute, it looked like the US had its consumer price puzzle solved. The core inflation measure – the one that excludes more volatile items such as food and energy – eased to 2.8% in March, a four-year low. Just about everyone expected those cooler price pressures to allow the Federal Reserve (Fed) to trim interest rates substantially this year. But the US president’s tariffs have thrown a wrench into the works. With prices expected to jump higher again, the Fed’s been stuck on pause, waiting to see how things play out.
Here’s a bit of the math involved. Goldman Sachs estimates that for every one percentage point hike in tariffs, core inflation rises by a tenth of a percentage point. So, with the effective tariff rate expected to be roughly 15%, that means we’re looking at a 1.5 percentage point boost to those prices. That’s assuming that roughly 70% of the higher import costs are passed along to customers. Not everything will rise by the same amount: as a rule of thumb, you can expect the sharpest price increases to be in clothes, electronics, and cars.
That’s why the Fed’s been sounding exceptionally cautious lately – it warned last week that both inflation and job market risks are ticking higher. Investors will get a clearer sense of that on Tuesday, when the consumer price index for April comes out. Now, economists expect inflation to hold steady at March’s level – figuring that the impact of those new levies may take a while to show up, especially with so many companies still selling through their pre-tariff inventory. With uncertainty as high as it is, anything that softens the blow – trade deals, import tax delays, or exemptions – will be seen as very welcome news for traders.
This document is provided to you for your information and discussion purposes only. It is not a solicitation for business or an offer to buy or sell any security or other financial instrument. Any information including facts, opinions, or quotations, may be condensed or summarised and are expressed as of the date of writing. The information may change without notice and Trusted Novus Bank (“TNB”) is under no obligation to ensure that such updates are brought to your attention. Past performance is not a guide to future performance.