Will Trump's Tariff Policy Affect US Inflation?
Zhi Tong Financial APP has learned that Zhong Xin Securities published a research report stating that this round of Trump's tariff policy has a universal nature and a significant increase in tariffs, and American companies generally have strong cost-passing intentions and abilities. The pressure brought by tariffs is expected to be gradually transmitted to the downstream consumer end. Currently, some US inflation anticipation indicators are already showing signals of inflation rising, and the pressure on US inflation cannot be ignored. It is likely that the upward trend of US inflation will appear in the second half of this year.
Main views of Zhong Xin Securities:
US key inflation indicators explained:
1) The Consumer Price Index (CPI) of the United States, compiled by the Bureau of Labor Statistics (BLS), is an important indicator of urban consumer price changes. The BLS tracks monthly prices for a basket of representative goods and services to reflect the trend of US residents' consumption costs.
2) The Personal Consumption Expenditures (PCE) Price Index, released by the Bureau of Economic Analysis (BEA), is a key inflation indicator used by the Federal Reserve in monetary policy decision-making. PCE is based on data from the Census Bureau's business surveys, covering retail trade and services, and has a broader statistical scope.
In 2017-2018, Trump's government implemented tariffs on Chinese goods, steel, aluminum products, which although short-term increased some import prices, did not form systematic inflation risks. This was mainly due to several factors:
1) The total value of the goods involved in Trump's first term was relatively small compared to this round of tariff policy; in 2017-2019, the tariffs on Chinese goods were less than $4 trillion, and the tariffs on steel and aluminum products were around $500 billion.
2) The US dollar strengthened during the period when tariffs were implemented, offsetting the pressure from cost increases.
3) At that time, there was a lack of inflation momentum, with inflation growth at around 2% levels, and the Federal Reserve was trying to push up inflation rather than suppress it.
4) The increase in import costs caused by tariffs was partly absorbed by export-oriented companies, US importers or distributors through profit compression.
5) Consumers' marginal substitution also played a buffering role.
6) Many American companies had pre-emptive stockpiling, which effectively delayed the impact of tariff shocks on terminal prices.
Although Trump's first term tariffs involved a limited scale of goods, US inflation did not show a clear upward trend. However, in retrospect, it is found that Trump's tariff policy had some positive effect on US inflation.
A report by the US International Trade Commission shows that the tariffs implemented in 2017-2018 pushed up domestic product prices by 0.2%. Moreover, the Boston Federal Reserve's assessment of the impact of tariffs on core PCE inflation in 2018 showed a contribution of 0.1 to 0.2 percentage points.
How will Trump's tariff policy affect US commodity prices and inflation?
Currently, attention should be paid to the fact that residential services are still showing sticky inflation trends, against the backdrop of which core commodity price inflation is rising gradually. The pressure on US inflation has already begun to appear. With American companies generally having strong cost-passing intentions and abilities, the pressure brought by tariffs is expected to be gradually transmitted to the downstream consumer end.
US implementation of comprehensive tariffs will form upward pressure on PCE inflation. St. Louis Federal Reserve Chairman Alberto Musalem has also stated that if US effective tariff rates are raised by 10 percentage points, it may lead to a 1.2% increase in PCE inflation levels. The Yale Budget Experiment Laboratory's latest calculation results show that Trump's tariff policy (as of July 27) will cause US prices to rise by 1.8% in the short term.
Some US inflation anticipation indicators are already showing signals of inflation rising:
From historical data, the US ISM Manufacturing PMI price component usually leads US CPI by about 6 months. The US PMI price component index has been rising since the end of 2023 and accelerating in 2025, with this indicator already showing a high level for four consecutive months (March-June 2025) above 69. This may suggest that US inflation pressure will appear in the second half of this year.
Risk factors:
US economic changes exceeding expectations; Trump government policy exceeding expectations; US monetary policy exceeding expectations; geographical political risk exceeding expectations, etc.