US CPI: Tariffs drive goods prices higher, but overall impact to should be fairly small – Wells Fargo

Data released today showed that the Consumer Price Index rose in the US during July 0.3%, in line with expectations and the core index also climbed 0.3%. Analysts at Wells Fargo point out that while a few details suggest that the pace overstates the trend, it is clear tariffs are beginning to drive goods prices higher. 

Key Quotes: 

“Consumer prices heated up in July, rising 0.3%. As expected, energy prices gave a pump to the headline, while food prices were flat. More striking was another strong gain in core prices, which pushed the year-over-year rate back up to 2.2%.”

“There were a number of signs that the upping of tariffs on about $250B of imports from China to 25% from 10% this summer is beginning to feed through to core goods and drive consumer prices higher.”

“While the FOMC has been seeking higher inflation, tariffs were not how it wanted to get it. Assuming inflation expectations are not altered, tariffs provide only a temporary boost to inflation after the initial lift to the price base, while weighing on broader growth prospects. Although inflation has firmed, we expect the Fed to continue to focus on the downside risks to growth amid the tumultuous global backdrop, and cut the fed funds rate again at its September meeting.”