US Inflation Remains Subdued Amid Tariff Uncertainty

In May 2025, the U.S. Consumer Price Index (CPI) rose by 0.1%, marking a slowdown from April's 0.2% increase. Year-over-year, the CPI advanced 2.4%, while the core CPI, excluding food and energy, maintained an annual increase of 2.8%. This moderation in inflation is attributed to lower gasoline prices offsetting higher housing and food costs.

Despite the recent moderation, economists caution that the full impact of the Trump administration's tariffs on imports has yet to materialize. As pre-tariff inventories deplete, consumers may face higher prices in the coming months. The Federal Reserve is expected to keep interest rates unchanged at its upcoming meeting, while the Bureau of Labor Statistics faces challenges in data collection due to resource constraints.

The moderation in inflation suggests that the anticipated economic damage from President Donald Trump's tariffs may not be inevitable. Despite widespread concerns, recent economic indicators, including the inflation data released on June 11, 2025, suggest that the U.S. economy remains unexpectedly resilient. Analysts had expected tariffs to exert upward pressure on inflation and slow economic growth, but this has not yet materialized. Many businesses are still relying on inventory stockpiled before tariffs were implemented, temporarily shielding consumers from rising prices. Experts caution, however, that once this supply runs out, the true effects of tariffs may become clearer. Seema Shah of Principal Asset Management warns that tariff-related price increases may emerge in the Consumer Price Index (CPI) in the coming months. Overall, while warning signs exist, the economy continues to absorb major shocks better than many analysts had predicted, delaying any significant inflation spikes linked to tariffs.

A recent survey highlights the significant strain midsize U.S. businesses are experiencing due to high tariffs stemming from ongoing trade tensions. These firms, with revenues ranging from $10 million to $2 billion, are less equipped than larger corporations to absorb rising costs. The RSM US Middle Market Business Index dropped nearly 19 points to 124.5 in Q2, reflecting the economic pressure these companies face. Conducted between April 7 and April 29, the survey captured responses in the aftermath of major tariff policy changes. Despite a temporary pause and a new deal with China, these measures did not alleviate the financial burden for midsize firms. Economists warn that persistent high tariffs may lead to a slowing U.S. economy and rising consumer prices, even if inflation appears moderate for now. Joe Brusuelas, RSM's chief economist, emphasized that the trade war has caused significant disruptions that could have lasting economic impacts. The article urges caution against complacency regarding price stability in the broader economy.

The Federal Reserve is expected to keep interest rates unchanged at its upcoming meeting, with markets eyeing potential easing later in the year. The moderation in inflation provides the Fed with some leeway to maintain its current monetary policy stance. However, the central bank remains vigilant about potential inflationary pressures that could arise from ongoing trade tensions and tariff implementations.

The Bureau of Labor Statistics faces criticism over data quality concerns amid staff cuts and resource constraints, leading to the suspension of CPI data collection in select cities and planned reductions in price index reporting from August. These challenges raise questions about the accuracy and comprehensiveness of future inflation data, which are crucial for policymakers and economists in assessing the health of the economy.

The current trade tensions and tariff implementations draw parallels to the Smoot–Hawley Tariff Act of 1930, which imposed high tariffs on numerous imports and is widely believed to have exacerbated the Great Depression. The tariffs announced on April 2, 2025, which could raise tariff levels higher than the rates during the Smoot–Hawley Tariffs, brought renewed attention to the Smoot–Hawley Act. Economists and historians caution that similar protectionist measures could lead to retaliatory actions from trade partners, potentially harming global trade and economic growth.

In summary, while the latest CPI data indicates a moderation in inflation, the looming effects of recent tariffs and trade policies introduce significant uncertainty. Businesses and consumers alike should remain vigilant as the economic landscape continues to evolve.