Evelyn Reynolds

Separate readings this week on consumer and producer prices were downright benign, as indexes from the Bureau of Labor Statistics reported both rose just 0.1% in May.
The months ahead are still expected to show price increases driven by President Donald Trump’s desire to ensure the U.S. gets a fair shake with its global trading partners.
So far, though, the duties have not driven prices higher, save for a few areas that are particularly sensitive to higher import costs.

Shoppers browse the frozen food cases at WinCo.
Joe Jaszewski | Idaho Statesman | Tribune News Service | Getty Images

Despite widespread fears to the contrary, President Donald Trump’s tariffs have yet to show up in any of the traditional data points measuring inflation.
In fact, separate readings this week on consumer and producer prices were downright benign, as indexes from the Bureau of Labor Statistics showed that prices rose just 0.1% in May.

The inflation scare is over, then, right?
To the contrary, the months ahead are still expected to show price increases driven by Trump’s desire to ensure the U.S. gets a fair shake with its global trading partners. So far, though, the duties have not driven prices up, save for a few areas that are particularly sensitive to higher import costs.
At least three factors have conspired so far to keep inflation in check:

Companies hoarding imported goods ahead of the April 2 tariff announcement.
The time it takes for the charges to make their way into the real economy.
The lack of pricing power companies face as consumers tighten belts.

“We believe the limited impact from tariffs in May is a reflection of pre-tariff stockpiling, as well as a lagged pass-through of tariffs into import prices,” Aichi Amemiya, senior economist at Nomura, said in a note. “We maintain our view that the impact of tariffs will likely materialize in the coming months.”

This week’s data showed isolated evidence of tariff pressures.

Canned fruits and vegetables, which are often imported, saw prices rise 1.9% for the month. Roasted coffee was up 1.2% and tobacco increased 0.8%. Durable goods, or long-lasting items such as major appliances (up 4.3%) and computers and related items (1.1%), also saw increases.
“This gain in appliance prices mirrors what happened during the 2018-20 round of import taxes, when the cost of imported washing machines surged,” Joseph Brusuelas, chief economist at RSM, said in his daily market note.
One of the biggest tests, though, on whether the price increases will prove durable, as many economists fear, or as temporary, the prism through which they’re typically viewed, could largely depend on consumers, who drive nearly 70% of all economic activity.
The Federal Reserve’s periodic report on economic activity issued earlier this month indicated a likelihood of price increases ahead, while noting that some companies were hesitant to pass through higher costs.
“We have been of the position for a long time that tariffs would not be inflationary and they were more likely to cause economic weakness and ultimately deflation,” said Luke Tilley, chief economist at Wilmington Trust. “There’s a lot of consumer weakness.”
Indeed, that’s largely what happened during the damaging Smoot-Hawley tariffs in 1930, which many economists believe helped trigger the Great Depression.
Tilley said he sees signs that consumers already are cutting back on vacations and recreation, a possible indication that companies may not have as much pricing power as they did when inflation started to surge in 2021.
Fed officials, though, remain on the sidelines as they wait over the summer to see how tariffs do impact prices. Markets largely expect the Fed to wait until September to resume lowering interest rates, even though inflation is waning and the employment picture is showing signs of cracks.
“This time around, if inflation proves to be transitory, then the Federal Reserve may cut its policy rate later this year,” Brusuelas said. “But if consumers push their own inflation expectations higher because of short-term dislocations in the price of food at home or other goods, then it’s going to be some time before the Fed cuts rates.”

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U.K. Finance Minister Rachel Reeves on Wednesday announced the government would inject billions of pounds into defense, healthcare, infrastructure, and other areas of the economy.
Funding public spending in the absence of a growing economy, leaves the government with two options: raise money through taxation, or take on more debt.
Market watchers warned of a “snowball effect” if Reeves’s spending plans send further jitters through the bond market.

LONDON, UNITED KINGDOM – MARCH 26, 2025: Britain’s Chancellor of the Exchequer Rachel Reeves leaves 11 Downing Street ahead of the announcement of the Spring Statement in the House of Commons in London, United Kingdom on March 26, 2025. (Photo credit should read Wiktor Szymanowicz/Future Publishing via Getty Images)
Wiktor Szymanowicz | Future Publishing | Getty Images

Britain’s government is planning to ramp up public spending — but market watchers warn the proposals risk sending jitters through the bond market further inflating the country’s $143 billion-a-year interest payments.
U.K. Finance Minister Rachel Reeves on Wednesday announced the government would inject billions of pounds into defense, healthcare, infrastructure, and other areas of the economy, in the coming years. A day later, however, official data showed the U.K. economy shrank by a greater-than-expected 0.3% in April.

Funding public spending in the absence of a growing economy, leaves the government with two options: raise money through taxation, or take on more debt.
One way it can borrow is to issue bonds, known as gilts in the U.K., into the public market. By purchasing gilts, investors are essentially lending money to the government, with the yield on the bond representing the return the investor can expect to receive.
Gilt yields and prices move in opposite directions — so rising prices move yields lower, and vice versa. This year, gilt yields have seen volatile moves, with investors sensitive to geopolitical and macroeconomic instability.
The U.K. government’s long-term borrowing costs spiked to multi-decade highs in January, and the yield on 20- and 30-year gilts continues to hover firmly above 5%.

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Official estimates show the government is expected to spend more than £105 billion ($142.9 billion) paying interest on its national debt in the 2025 fiscal year — £9.4 billion higher than at the the time of the Autumn budget last year — and £111 billion in annual interest in 2026.

The government did not say on Wednesday how its newly unveiled spending hikes will be funded, and did not respond to CNBC’s request for comment about where the money will come from. However, in her Autumn Budget last year, Reeves outlined plans to hike both taxes and borrowing. Following the budget, the finance minister pledged not to raise taxes again during the current Labour government’s term in office, saying that the government “won’t have to do a budget like this ever again.”
Andrew Goodwin, chief U.K. economist at Oxford Economics, said Britain’s government may be forced to go even further with its spending plans, with NATO poised to hike its defense spending target for member states to 5% of GDP, and once a U-turn on winter fuel payments for the elderly and other possible welfare reforms are factored in.
Additionally, Goodwin said, the U.K.’s Office for Budget Responsibility is likely to make “unfavorable revisions” to its economic forecasts in July, which would lead to lower tax receipts and higher borrowing.
“If recent movements in financial market pricing hold, debt servicing costs will be around £2.5bn ($3.4 billion) higher than they were at the time of the Spring Statement,” Goodwin warned in a note on Wednesday.

‘Very fragile situation’

Mel Stride, who serves as the shadow Chancellor in the U.K.’s opposition government, told CNBC’s “Squawk Box Europe” on Thursday that the Spending Review raised questions about whether “a huge amount of borrowing” will be involved in funding the government’s fiscal strategies.
“[Government] borrowing is having consequences in terms of higher inflation in the U.K. … and therefore interest rates [are] higher for longer,” he said. “It’s adding to the debt mountain, the servicing costs upon which are running at 100 billion [pounds] a year, that’s twice what we spend on defense.”
“I’m afraid the overall economy is in a very weak position to withstand the kind of spending and borrowing that this government is announcing,” Stride added.

Stride argued that Reeves will “almost certainly” have to raise taxes again in her next budget announcement due in the autumn.
“We’ve ended up in a very fragile situation, particularly when you’ve got the tariffs around the world,” he said.
Rufaro Chiriseri, head of fixed income for the British Isles at RBC Wealth Management, told CNBC that rising borrowing costs were putting Reeves’ “already small fiscal headroom at risk.”
“This reduced headroom could create a snowball effect, as investors could potentially become nervous to hold UK debt, which could lead to a further selloff until fiscal stability is restored,” he said.
Iain Barnes, Chief Investment Officer at Netwealth, also told CNBC on Thursday that the U.K. was in “a state of fiscal fragility, so room for manoeuvre is limited.”
“The market knows that if growth disappoints, then this year’s Budget may have to deliver higher taxes and increased borrowing to fund spending plans,” Barnes said.

However, April LaRusse, head of investment specialists at Insight Investment, argued there were ways for debt servicing burdens to be kept under control.
The U.K.’s Debt Management Office, which issues gilts, has scope to reshape issuance patters — the maturity and type of gilts issued — to help the government get its borrowing costs under control, she said.
“With the average yield on the 1-10 year gilts at c4% and the yield on the 15 year + gilts at 5.2% yield, there is scope to make the debt financing costs more affordable,” she explained.
However, LaRusse noted that debt interest payments for the U.K. government were estimated to reach the equivalent of around 3.5% of GDP this fiscal year, and that overspending could worsen the burden.
“This increase is driven not only by higher interest rates, which gradually translate into higher coupon payments, but also by elevated levels of government spending, compounding the fiscal burden,” she said. More

U.K. exports to the U.S. fell by highest figure on record in April, which the national statistics office attributed to Washington’s tariff policies.
The U.S. returned to a trade surplus in goods with the U.K. for the first time since March 2024, as its imports of British cars, metals and chemicals dropped.
The U.K.’s overall trade deficit to £11.5 billion from £6.6 billion, while figures also out Thursday showed the economy contracted by a weaker-than-expected 0.3% in April.

Container ships at Felixstowe port in Felixstowe, UK, on Wednesday, April 9, 2025.
Bloomberg | Bloomberg | Getty Images

U.K. goods exported to the U.S. dropped by £2 billion ($2.71 billion) in April, figures published by the Office for National Statistics on Thursday showed, marking the biggest monthly decrease since records began in 1997.
The value of Britain’s exports stateside was the lowest since February 2022 at £4.1 billion, with the ONS saying the shift was “likely linked to the implementation of tariffs on goods imported to the United States.” Cars, chemicals and metals exports all saw declines, the ONS said.

U.S. imports to the U.K. dipped by £400 million for the month to £4.7 billion, taking Washington back to a trade surplus in goods with the country for the first time since May 2024. Trade data shows U.K. businesses heavily ramped up their exports to the U.S. from the start of 2025 as rumors about the introduction of tariffs — eventually confirmed on April 2 — swirled.

The main goods sent by the U.K. to the U.S. include automotives, medicines, mechanical generators, scientific instruments and aircraft. The U.K. meanwhile has a strong appetite for U.S. oil, as well as its own pharmaceutical products and aircraft.
The U.K. and U.S. announced the outline of a trade deal at the start of May, but the agreement still imposed 10% blanket tariffs on British goods sent stateside and has not yet been fully implemented. U.S. President Donald’s Trump’s universal 25% duties on steel and aluminum are set to be slashed to zero for the U.K., while up to 100,000 British cars a year will be hit with a rate of 10% rather than 25%, but higher tariffs remain in force while final details of the deal are confirmed.
Trump has looked relatively favorably upon the U.K. during his second presidency while he has slammed other key trading partners such as the European Union. That’s in part because of his friendly relations with British Prime Minister Keir Starmer, but primarily because the U.K.-U.S. trade relationship in goods has historically been relatively balanced.
Overall, the U.K.’s trade deficit in goods rose by £4.4 billion to £60 billion in the three months to April, while its trade surplus in services dipped by £500 million to £48.5 billion.

That took the total trade deficit across both goods and services to £11.5 billion from £6.6 billion.

UK finance minister set on ‘renewing Britain’ as she unveils spending plans

The ONS noted in its release that monthly trade data could be “erratic” and that its next data set would account for the subsequently-agreed trade deal.
Figures also published by the ONS on Thursday showed the U.K. economy contracted by 0.3% in April, below the 0.1% expected by economists polled by Reuters. The U.K.’s dominant services sector was a weak point, shrinking 0.4%, while construction output increased by 0.9%.
It follows signs of a weakening U.K. labor market out earlier in the week, with job vacancies down 7.9%, and the employment rate rising to 4.6% from 4.5%. The rate of wage growth eased to 5.3% from 5.6%, with markets subsequently fully pricing in another half-percentage-point interest rate from the Bank of England before the end of the year.
Business sentiment remains on edge, due to tariffs and macroeconomic uncertainty, and because of government policies including a minimum wage hike, new worker protections and higher tax rates for employees.

Sanjay Raja, chief U.K. economist at Deutsche Bank, said the U.K. economy was “always on a collision course for a course correction after a super strong start to the year.”
Growth hit 0.7% in the first quarter, accelerating from 0.1% growth in the final quarter of 2024.
“While headwinds in April will likely soften in the coming months, they won’t dissipate fully. Despite the U.K.’s trade deal with the US, trade uncertainty is here to stay. The labor market continues to loosen too, which will weigh on household spending. And monetary policy remains restrictive, which will also drag on output,” Raja said in a note. More

After running a short-lived surplus in April thanks to tax season receipts, the deficit totaled just more than $316 billion for the month, taking the year-to-date total to $1.365 trillion.
Surging financing costs were again a major contributor to fiscal issues, with interest on the $36.2 trillion debt topping $92 billion.

The U.S. Department of the Treasury building is seen in Washington, D.C., on Jan. 19, 2023.
Saul Loeb | Afp | Getty Images

The U.S. government drifted further into red ink in May, with a burgeoning debt and deficit issue getting worse, the Treasury Department reported Wednesday.
After running a short-lived surplus in April thanks to tax season receipts, the deficit totaled just more than $316 billion for the month, taking the year-to-date total to $1.36 trillion.

The annual tally was 14% higher than a year ago, though the May 2025 total was 9% less than the May 2024 shortfall.
Surging financing costs were again a major contributor to fiscal issues, with interest on the $36.2 trillion debt topping $92 billion. Interest expenses on net exceeded all other outlays except for Medicare and Social Security. Debt financing is expected to run above $1.2 trillion for this fiscal year, totaling $776 billion through the first eight months of the fiscal year.
Tax revenue has not been the problem. Receipts rose 15% in May and are up 6% from a year ago. Expenditures increased 2% monthly and are up 8% from a year ago.
Tariff collections also helped offset some of the shortfall. Gross customs duties for the month totaled $23 billion, up from $6 from the same month a year ago. For the year, gross tariff collections have totaled $86 billion, up 59% from the same period in 2024.
However, yields have held higher. After dipping last summer into September, they turned up in direct opposition to Federal Reserve rate cuts, eased in the early part of the year, then moved higher again following President Donald Trump’s April 2 “liberation day” tariff announcement. The 10-year Treasury yield is virtually unchanged from a year ago around 4.4%.
In recent weeks, Wall Street leaders including JPMorgan Chase CEO Jamie Dimon, BlackRock CEO Larry Fink and Bridgewater Associates’ Ray Dalio have warned of turmoil that could come from the onerous debt burden. The deficit is currently running more than 6% of gross domestic product, virtually unheard of in peacetime U.S. economies.

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In a social media post Wednesday morning on X, Vice President JD Vance echoed his boss’ urging that the central bank ease monetary policy.
The statement followed a Bureau of Labor Statistics report showing that the consumer price index increased just 0.1% both on the all-items reading and the core.

U.S. Vice President JD Vance speaks, during a tour of Nucor Steel Berkeley in Huger, South Carolina, U.S., May 1, 2025.
Kevin Lamarque | Reuters

President Donald Trump and Vice President JD Vance are now double-teaming the Federal Reserve in an effort to get lower interest rates.
In a social media post Wednesday morning on X, Vance echoed his boss’ urging that the central bank ease monetary policy, after the latest inflation readings showed that tariffs are yet to exert any substantial upward pressure on inflation.

“The president has been saying this for a while, but it’s even more clear: the refusal by the Fed to cut rates is monetary malpractice,” Vance wrote.
The statement followed a Bureau of Labor Statistics report showing that the consumer price index increased just 0.1% both on the all-items reading and the core that excludes food and energy. On an annual basis, the respective inflation levels stood at 2.4% and 2.8%, both above the Fed’s 2% goal.
While Trump had yet to address the CPI numbers himself Wednesday, the president has been badgering Chair Jerome Powell and his cohorts on the Federal Open Market Committee to cut rates. The Fed last eased in December, and officials lately have expressed concern over the longer-term impacts that tariffs will have on prices. Trump has said he wants a full percentage point cut from the current target level for the fed funds rate at 4.25%-4.5%.
The FOMC will release its interest rate decision in a week, and markets are assigning zero probability of a rate cut following the two-day meeting. Traders expect the Fed to ease in September, according to CME Group data.
Administration officials have emphasized the easing inflation data as well as a moderating labor market as reasons to lower rates.
“To me, that combination says it may be time for another rate cut, but I expect the Fed to emphasize the ongoing uncertainty and a desire to not act too early. It’s a tough spot,” said Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management.

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