What Are the Impacts of Trump's Tariffs and Trade Wars? Moody's Chief: Inflation Data Will Look "Ugly" by Summer!

Mark Zandi, chief economist at Moody's, recently warned that the impact of President Trump's tariff agenda and the resulting trade war would translate into higher consumer prices during the summer.

Tariffs are essentially import taxes paid by US companies. Most economists agree that importers will pass at least part of the increased costs on to consumers. According to an analysis of the tariff policy announced on Wednesday by the Yale Budget Lab, consumers will lose $4,400 in purchasing power in the "short term."

Zandi stated, "I suspect that by May—and then June and July—the inflation statistics will look quite bad."

Lag in Economic Data

Currently, federal inflation data has not yet shown significant effects from the tariffs. According to Zandi, it is highly ironic that the "specter" of a global trade war may have had a "positive" impact on inflation in March. He said that due to concerns about a global economic recession (and the resulting decline in oil demand), oil prices have pulled back, and this dynamic has penetrated into the decline in energy prices.

Similarly, Preston Caldwell, chief US analyst at Morningstar, also said, "I think it will take some time for the inflation shock to work its way through the economic system. At first, (inflation data) may look better than it ultimately will be."

Thomas Ryan, an economist at Capital Economics, also said that if the president maintains the tariff policy, consumers will begin to see significant price increases by May.

"Price increases take time to filter through the entire supply chain (starting with producers, then retailers/wholesalers, and finally consumers)," Ryan wrote in an email.

Capital Economics expects the Consumer Price Index (CPI) to peak at around 4% in 2025, up from 2.4% in March. This peak is about double the US Fed's long-term target.

Food Prices Rise First

According to Zandi, food is likely to be one of the first categories to see price increases. Since many food items are perishable, grocery stores cannot hold them for long. He said this accelerates the process of passing higher costs on to consumers.

He added that, in contrast, other retailers can sell older inventory in their warehouses that is not affected by tariffs. This dynamic will delay the impact of prices on consumers.

Zandi also said that by Memorial Day (the last Monday in May each year), most physical goods, such as cars, consumer electronics, clothing, and furniture, are expected to see price increases.

In addition, Ryan stated that retailers and wholesalers "won’t want to do it all at once." They will gradually raise prices over time to soften the impact on consumers. But in May and beyond, consumer prices "will more fully reflect the true impact of tariffs."

Caldwell, on the other hand, said that for companies, doing so would be a gamble.

"Any company that takes the risk of raising prices first is likely to face political backlash and unfavorable (public sentiment) attention," he said. "I think companies will move quite slowly at first."