Price Shock: Still No Signs Tariffs Pinch Consumer Wallets, Inflation Remains Mild

WILBUR-ROSS Campbell Soup

The tariffs imposed by the Trump administration on steel, aluminum, and imports from China have not taxed American consumers.

The Labor Department said Wednesday that its Consumer Price Index rose 0.3 percent last month and is up 2.5 percent compared with a year ago, matching economists forecast.

Excluding volatile food and energy, however, the CPI climbed just 0.2 percent for the month and is up 2.1 percent from a year ago, again matching forecasts. That’s a slowdown in inflation from September, when prices were up 2.2 percent from a year prior.

In a separate report, the government said average hourly wages grew at a 3.1% annualized pace in October, the first reading of 3% or more since 2009.  Adjusted for inflation, average hourly earnings were up 0.5 percent, seasonally adjusted. Combining the change in real average hourly earnings with no change in the average workweek resulted in a 0.5-percent increase in real average weekly earnings over this period, the Labor Department said.

Prices of most items subject to the metals and China tariffs, however, either declined or advanced on pace with or slower than inflation and wages. In other words, prices for most tariff impacted items fell in inflation-adjusted terms.

Take the price of soup and beer. These items came into focus when Commerce Secretary Wilbur Ross confronted critics of tariffs back in March on CNBC while holding up a can of Budweiser and a can of Campbell’s soup. The prices of these items, Ross argued, would hardly be affected at all by the 10 percent tariff on aluminum. Critics had argued that the rising the price of the metal would win up pinching consumers by raising prices in the grocery aisle.

The price of soup is down 1.6 percent compared with a year ago. This appears to be a volatile category on a monthly basis, thanks in part to seasonal adjustments. Compared to a month ago, the unadjusted price of soup fell 0.5 percent. Adjusted for inflation, however, the price rose 1.14 percent in October, fell 1.4 percent in September, and rose 1.1 percent in August. No sign of tariff driven price hikes here.

The price of beer consumed at home is up 1.6 percent compared with a year ago, and up a seasonally adjusted 0.3 percent for the month after being flat in September. So prices here are up by less than inflation.

The price of beer kegs was reportedly rising because of the aluminum tariffs. If so, the price increases are not being passed on to consumers. The price of beer in bars and restaurants is up 2.1 percent compared with a year ago, in line with overall inflation and below wage gains. For the month, the price of beer consumed outside of the home was flat.

Prices on canned fruits and vegetables fell a seasonally adjusted 1 percent in October. For the year, these prices are up just 1.7 percent.

Tools and hardware also defied the “tariffs are taxes on consumers” narrative. Prices on these fell 0.4 percent in October and are up just 0.4 percent compared with a year ago

Car and truck prices also show no signs of tariff driven inflation. The price of a new car fell a seasonally adjusted 0.2 percent in October and is up just 1.2 percent for the year. The price of new trucks fell 0.1 percent for the month, following a 0.3 percent decline in September. Compared with a year ago, truck prices are down 0.1 percent. Auto parts are up just 1.2 percent compared with a year ago.

The cost of televisions fell again in October, dropping by a seasonally adjusted 1.3 percent. This is the third consecutive monthly decline for televisions. Compared with a year ago, television prices are off 17.8 percent.

The price of personal computers fell 1.6 percent and is down 4 percent for the year. Software prices are down 3.7 percent for the year. Phone prices are down 6.6 percent compared with a year ago.

Prices did climb 0.5 percent for major appliances in October. For the year, major appliances prices are up 8.1 percent. But this annual gain is largely driven by the climb in the price of laundry equipment, which in turn was driven by a specific anti-dumping tariff imposed in January intended to drive up the price from artificially depressed levels. But even here prices have leveled off. Earlier this year, laundry equipment prices were up 16 percent. Now they are up just 9.9 percent.

The tariffs on Chinese-made goods also do not seem to have had much of an effect on consumer prices. Initially these applied to $50 billion of imports from China and were largely focused on technology goods. In late September, however, the China tariffs were broadened to cover a wide array of consumer goods.

The prices of furniture and bedding, one of the largest categories of China-made imports, rose just 0.1 percent in October and are up just 1.3 percent annually. Toys, another big import category, saw prices fall 0.8 percent in October. For the year, toy prices are down 10.9 percent. Sports equipment prices fell 0.8 percent in October and are down 4 percent compared with a year ago.

Clothing prices rose just 0.1 percent in October and are down 04 percent compared with a year ago. Footwear prices fell 0.3 percent for the month and are down 0.7 percent from a year ago.

So with all these prices falling or rising by less than inflation, where did the rise in the Consumer Price Index come from? Mostly, from services–an area not subject to tariffs. Prices of services rose 2.9 percent compared with a year ago. Haircuts and other personal care services rose 3.1 percent. Gardening and lawn care is up 8.9 percent. Legal services up 5 percent. This is likely reflective of the tightness of the labor market due to very low unemployment.

The consumer price data released on Wednesday largely confirmed the evidence from producer price data released a week ago that showed higher costs due to tariffs were not being passed on to consumers.

Tariffs may raise some consumer prices next year. But so far the evidence is conclusive: tariffs are not taxing consumers.


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