Today's data show that the Consumer Price Index rose at a 2.7% annual rate in April. That's a faster rate than the Federal Reserve's target, but it's not crazy. Does this mean tariffs had no effect?
No. The first round of high tariffs was announced on April 2, and prices don't change instantaneously. It takes time and effort to change them – what economists often call "menu costs", because a restaurant would have to print new menus.
In fact, last month I asked several local retailers what they were going to do about prices for the imported goods they sold. All of them said that they would leave prices unchanged for their current inventories. But when it came time to bring in new orders from abroad – and pay the high tariffs – they would have to pass the increases on to consumers.
Naturally, retailers in competitive markets with low margins were trying to put off the price increases as long as they could. The uncertainty about how long the tariffs would be in place only reinforced that decision. But now it seems like the 10% minimum tariff is here to stay.
As a result, I still expect prices to increase. Eventually, the burden of the 10% tariff could be shared by exporters, importers, and consumers. But I'd be surprised if consumers ended up paying zero. More likely, we'll see the tariffs reflected in price increases of 2-5%, over and above normal inflation, during the coming year.