Raphael Stevens

Economists expect that tariffs will lead to higher prices for consumers.
The price impact will be noticeable by summer, economists said.
Food prices will be among the early indicators, then physical goods, they said.
President Donald Trump may change course regarding policy, however.

People shop at a grocery store in Manhattan on April 1, 2025, in New York City.
Spencer Platt | Getty Images

The impact of President Donald Trump’s tariff agenda and resulting trade war will translate to higher consumer prices by summer, economists said.
“I suspect by May — certainly by June, July — the inflation statistics will look pretty ugly,” said Mark Zandi, chief economist at Moody’s.

Tariffs are a tax on imports, paid by U.S. businesses. Importers pass on at least some of those higher costs to consumers, economists said.

While economists debate whether tariffs will be a one-time price shock or something more persistent, there’s little argument consumers’ wallets will take a hit.
Consumers will lose $4,400 of purchasing power in the “short run,” according to a Yale Budget Lab analysis of tariff policy announced through Wednesday. (It doesn’t specify a timeframe.)

‘Darkly ironic’ tariff impact

Federal inflation data doesn’t yet show much tariff impact, economists said.
In fact, in a “darkly ironic” way, the specter of a global trade war may have had a “positive” impact on inflation in March, Zandi said. Oil prices have throttled back amid fears of a global recession (and a resulting dip in oil demand), a dynamic that has filtered through to lower energy prices, he said.

“I think it’ll take some time for the inflationary shock to work its way into the system,” said Preston Caldwell, chief U.S. economist at Morningstar. “At first, [inflation data] might look better than it will be eventually.”

But consumers will start to see noticeably higher prices by May, if the president keeps tariff policy in place, said Thomas Ryan, an economist at Capital Economics.
“Price increases take time to filter through the supply chain (starting with producers, then retailers/wholesalers, and finally consumers),” Ryan wrote in an e-mail.
Capital Economics expects the consumer price index to peak around 4% in 2025, up from 2.4% in March. That peak would be roughly double what the Federal Reserve aims for over the long term.

Food is first, then physical goods

Food will likely be among the first categories to see prices rise, Zandi said.
Because many food products are perishable, grocers can’t hold on to supply for very long. That speeds up the pass-through of higher costs to consumers, he said.
By comparison, other retailers can sell old inventory sitting in their warehouses that hadn’t been subject to tariffs, economists said. That dynamic would delay the price impact for consumers, economists said.
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Most physical goods, such as vehicles, consumer electronics, clothing and furniture, are expected to be pricier by Memorial Day, Zandi said.
Additionally, retailers and wholesalers “won’t want to do this all at once,” Ryan said.
They’ll likely sprinkle in higher prices over time to blunt backlash from consumers, Ryan said. Consumer prices “will reflect more of the true impact of tariffs” in May and beyond, he said.

There’s also the possibility that some companies may try to front-run the impact of tariffs by raising prices now, in anticipation of higher costs, Ryan said.
It would be a gamble for companies to do that, though, Caldwell said.
“Any company that kind of sticks its neck out first and increases prices will probably be subject to political boycotts and unfavorable attention,” he said. “I think companies will move pretty slowly at first.”

Trump may change course

There’s ample uncertainty regarding the ultimate scope of President Trump’s tariff policy, however, economists said.
Trump on Wednesday backed down from imposing steep tariffs on dozens of trading partners. Kevin Hassett, director of the National Economic Council, said Thursday that 15 countries had made trade deal offers.
For now, all U.S. trading partners still face a 10% universal tariff on imports. The exceptions — Canada, China and Mexico — face separate levies. Trump put a total 145% levy on goods from China, for example, which constitutes a “de facto embargo,” said Caldwell.
Trump has also imposed product-specific tariffs on aluminum, steel, and automobiles and car parts.
There’s the possibility that prices for services like travel and entertainment could fall if other nations retaliate with their own trade restrictions or if there’s less foreign demand, Zandi said.
There was some evidence of that in March: “Steep” declines in hotel prices and airline fares in the March CPI data partly reflect the recent drop in tourist visits to the U.S., particularly from Canada, according to a Thursday note from Capital Economics. More

The annual consumer price index fell to 2.4% in March, down from 2.8% in February, according to the Bureau of Labor Statistics.
President Donald Trump’s tariff agenda and the prospect of a global trade war threaten to reverse progress in coming months.

David Paul Morris/Bloomberg via Getty Images

Inflation throttled back in March, largely on lower gasoline prices — but tariffs threaten to reverse that downward trend in coming months while trouble also lurks in certain categories like groceries, economists said.
The consumer price index rose 2.4% for the 12 months ended in March, down from 2.8% in February, the U.S. Bureau of Labor Statistics reported Thursday, indicating that inflation decelerated.

Additionally, the “core” CPI — a measure that strips out food and energy prices, which can be volatile — fell from 3.1% to 2.8%, the lowest level since March 2021. Economists prefer to look at core inflation to determine underlying inflation trends.

However, there are trouble spots like grocery prices and the Trump administration’s economic policy poses a significant headwind, economists said.
“It would have been a really good day,” Mark Zandi, chief economist at Moody’s, said of the CPI report. “But because of the tariffs, the trade war, it means nothing.”
He added that “it doesn’t reflect any of the tariffs being slapped on products around the world, particularly those coming from China.”
The consumer price index is a widely used measure of inflation that tracks how quickly prices rise or fall for a basket of goods and services, from haircuts to coffee, clothing and concert tickets.

CPI inflation has declined significantly from its pandemic-era high of 9.1% in June 2022.
However, it remains above the Federal Reserve’s target. The central bank aims for an annual rate around 2% over the long term.

Why tariffs raise prices

Tariffs, a tax paid by U.S. importers, add costs for businesses that ultimately get passed to consumers, economists said. Steel tariffs, for example, could make steel-intensive items like cars, homes and machinery more expensive, they said.
Tariffs “are going to be the main driver of inflation surging this year,” said Thomas Ryan, an economist at Capital Economics.

President Donald Trump on Wednesday backed down from imposing steep tariffs on dozens of trading partners, following a stock market rout and surging U.S. government bond yields, which push down bond prices.
While Trump delayed country-specific tariffs for 90 days, all U.S. trading partners still face a 10% universal tariff on all imports. The exceptions — Canada, China and Mexico — face separate levies, however.
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Imports from China are subject to a 145% tariff, for example. In response, China put 84% retaliatory tariffs on U.S. exports. Trump has also imposed product-specific tariffs on aluminum, steel, and automobiles and car parts.
“Many products that the U.S. imports are predominantly from China. Smartphones [73%], laptops [78%], video game consoles [87%], toys [77%], and also antibiotics for U.S. livestock production,” Wendong Zhang, professor of applied economics and policy at Cornell University, wrote in an email to CNBC. “Resourcing from other countries will take time and result in much higher costs.”

Trump’s tariff policy will push the U.S. inflation rate to a peak around 4% by the end of 2025, Capital Economics estimates. That’s roughly double the Fed’s long-term target.
Vanguard Group projects a similar rise in inflation, particularly for goods prices. The money manager forecasts a 4% full-year 2025 inflation rate due to U.S. tariffs and retaliation by other nations.
Economists question whether the inflation impact will be short-lived (akin to a one-time price shock) or something more persistent.

Housing disinflation ‘set in stone’

Inflation was expected to continue its gradual decline in 2025 absent Trump’s economic policy, said Preston Caldwell, chief U.S. economist at Morningstar.
The trajectory of housing inflation is a major driver of that disinflationary trend, he said.

Shelter is the largest component of the consumer price index, and therefore has an outsized impact on the direction of inflation. Annual shelter inflation eased to 4% in March, the smallest 12-month increase since November 2021, according to the BLS.
Housing disinflation is “something that’s sort of set in stone, at this point,” Caldwell said.

Gasoline prices tumble

Gasoline prices also dropped in March. Prices at the pump declined 6.3% from February to March, after an adjustment for seasonal factors, according to the BLS.
Seasonally adjusted prices are down about 10% over the past year.

Oil prices plunged in early April, tied to fears of a global recession crimping demand, and gasoline prices are expected to throttle back further if the trend continues, economists said.

Groceries are a trouble spot

Trouble spots do remain, however.
Food prices were “the significant blemish” in the CPI report, particularly those for groceries, Zandi said.
According to BLS data, grocery prices rose 0.5% in the month from February to March, up from 0% the prior month, which is higher than the roughly 0.2% monthly move that economists say is needed to reach the Fed’s annual inflation target. 
Egg prices jumped about 6% for the month and are up 60% in the past year, according to BLS data. That jump is largely attributable to a U.S. outbreak of bird flu, which has killed millions of egg-laying chickens and crimped egg supply.

Prices for instant coffee have also surged, about 13%. Weather patterns like droughts fueled by climate change have disrupted major coffee growers like Brazil, reducing supplies of coffee beans.
However, the broad increase in grocery prices isn’t attributable to one factor or agricultural product, Zandi said.
It’s “worrisome” that food inflation has picked up even as diesel prices have fallen, a dynamic that would generally serve to hold down inflation due to lower transportation costs to grocery shelves, Zandi said.
“This inflation report had some highlights, and continues to have problem areas in food prices and energy components like electricity and natural gas,” Greg McBride, chief financial analyst at Bankrate, wrote Thursday morning. “But all this is looking in the rear-view mirror. With both inflation and the overall economy, uncertainty abounds about what might be lurking around the bend.”

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As stocks plunged and even the safe haven of U.S. Treasurys began selling off, investors, executives and analysts began to fret that a core assumption about the Trump presidency may no longer apply.
Amid the market carnage, the world’s most powerful person showed that he had a greater tolerance for inflicting pain on investors than anyone had anticipated.

Jamie Dimon, CEO of JPMorgan Chase, testifies during the Senate Banking, Housing and Urban Affairs Committee hearing titled Annual Oversight of Wall Street Firms, in the Hart Building on Dec. 6, 2023.
Tom Williams | Cq-roll Call, Inc. | Getty Images

With each passing day since President Donald Trump’s sweeping tariff announcement last week, a growing sense of unease had begun to pervade Wall Street.
As stocks plunged and even the safe haven of U.S. Treasurys were selling off, investors, executives and analysts started to fret that a core assumption from the first Trump presidency may no longer apply.

Amid the market carnage, the world’s most powerful person showed that he had a greater tolerance for inflicting pain on investors than anyone had anticipated. Time after time, he and his deputies denied that the administration would back off from the highest American tariff regime in a century, sometimes inferring that Wall Street would have to suffer so that Main Street could thrive.
“It goes without saying that last week’s price action was shocking to see as the market has begun to rewrite completely its sense for what a second Trump presidency means for the economy,” said R. Scott Siefers, a Piper Sandler analyst, earlier this week.
So it came as a huge relief to investors when, minutes after 1 p.m. ET on Wednesday, Trump relented by rolling back the highest tariffs on most countries except China, sparking the biggest one-day stock rally for the S&P 500 since the depths of the 2008 financial crisis.
Despite a presidency in which Trump has tested the limits of executive power — bulldozing federal agencies and laying off thousands of government employees, for example — the episode shows that the market, and by proxy Wall Street statesmen like JPMorgan Chase CEO Jamie Dimon who can explain its gyrations, are still guardrails on the administration.
Later Wednesday afternoon, Trump told reporters that he pivoted after seeing how markets were reacting — getting “yippy,” in his words — and took to heart Dimon’s warning in a morning TV appearance that the policy was pushing the U.S. economy into recession.

Dimon’s appearance in a Fox news interview was planned more than a month ago and wasn’t a last-minute decision meant to sway the president, according to a person with knowledge of the JPMorgan CEO’s schedule.

Bond vigilantes

Of particular concern to Trump and his advisors was the fear that his tariff policy could incite a global financial crisis after yields on U.S. government bonds jumped, according to the New York Times, which cited people with knowledge of the president’s thinking.
“The stock market, bond market and capital markets are, to a degree, a governor on the actions that are taken,” said Mike Mayo, the Wells Fargo bank analyst. “You were hearing about parts of the bond market that were under stress, trades that were blowing up. You push so hard, but you don’t want it to break.”
Typically, investors turn to Treasurys in times of uncertainty, but the sell-off indicated that institutional or sovereign players were dumping holdings, leading to higher borrowing costs for the government, businesses and consumers. That could’ve forced the Federal Reserve to intervene, as it has in previous crises, by slashing rates or acting as buyer of last resort for government bonds.

“The bond market was anticipating a real crisis,” Ed Yardeni, the veteran markets analyst, told CNBC’s Scott Wapner on Wednesday.
Yardeni said it was the “bond vigilantes” that got Trump’s attention; the term refers to the idea that investors can act as a type of enforcer on government behavior viewed as making it less likely they’ll get repaid.
Amid the market churn, Wall Street executives had reportedly worried that they didn’t have the influence they did under the first Trump administration, when ex-Goldman partners including Steven Mnuchin and Gary Cohn could be relied upon.
But this last week also showed investors that, in his mission to remake the global order of the past century, Trump is willing to take his adversarial approach with trading partners and the larger economy to the knife’s edge, which only invites more volatility.

‘Chaos discount’

Banks, closely watched for the central role they play in lending to corporations and consumers, entered the year with great enthusiasm after Trump’s election.
The setup was as promising as it had been in decades, according to Mayo and other analysts: A strengthening economy would help boost loan demand, while lower interest rates, deregulation and the return of deals activity including mergers and IPO listings would only add fuel to the fire.
Instead, by the last weekend, bank stocks were in a bear market, having given up all their gains since the election, on fears that Trump was steering the economy to recession. Amid the tumult, it’s likely that reports will show that deal-making slowed as corporate leaders adopt a wait-and-see attitude.  
“The chaos discount, we call it,” said Brian Foran, an analyst at Truist bank.
Foran and other analysts said the Trump factor made it difficult to forecast whether the economy was heading for recession, which banks would be winners and losers in a trade war and, therefore, how much they should be worth.
Investors will next focus on JPMorgan, which kicks off the first-quarter earnings season on Friday. They will likely press Dimon and other CEOs about the health of the economy and how consumers and businesses are faring during tariff negotiations.
Wednesday’s reprieve could prove short lived. The day after Trump’s announcement and the historic rally, markets continued to decline. There remains a trade dispute between the world’s two largest economies, each with their own needs and vulnerabilities, and an unclear path to compromise. And universal tariffs of 10% are still in effect.
“We got close, and that’s a very uncomfortable place to be,” Mohamed El-Erian, chief economic advisor of Allianz, the Munich-based asset manager, said Wednesday on CNBC, referring to a crisis in which the Fed would need to step in.  
“We don’t want to get there again,” he said. “The more you get to that point repeatedly, the higher the risk that you’re going to cross it.” More

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