All In - Trump’s Tariff Roulette and the Creeping Inflation

US inflation held steady at first glance in July - and yet the picture is anything but reassuring. While falling gasoline and food prices kept the inflation rate in check, beneath the surface it is clear how deeply President Donald Trump’s tariff policy is reshaping the structure of the economy. Consumer prices were 2.7 percent higher than a year earlier, unchanged from June, but far from the pandemic low of 2.3 percent in April. Core inflation, excluding volatile energy and food prices, rose to 3.1 percent, clearly exceeding the Federal Reserve’s 2 percent target. It is the silent bill of a gigantic experiment: Trump’s universal 10 percent tariff on all imports, introduced in April, paired with targeted punitive tariffs on countries like China and Canada. Brian Bethune of Boston University calculates that the average tariff burden has risen to its highest level in decades - and is likely to climb further in the coming months. Many companies are still absorbing the additional costs, but experts are certain: in the end the consumer will pay. Sometimes directly, sometimes subtly - through “shrinkflation,” when packages get smaller but the price remains the same.

The US Federal Reserve thus finds itself caught in the middle. The labor market has been weakening since the spring, and financial markets are betting on an interest rate cut in September. But with core inflation rising instead of falling, the risk grows that Fed Chair Jerome Powell will pause - much to the president’s anger. Trump attacked Powell again and cryptically hinted he might allow a lawsuit against the Fed, supposedly over the cost of a building renovation. The political pressure on the central bank is massive, and independence is no longer a given. Meanwhile, the price dynamics tell their own story. Gasoline fell 2.2 percent from June to July, and 9.5 percent year over year. Food prices fell slightly, but remain higher than in 2024. In other areas, however, the tariffs are already hitting: shoes rose 1.4 percent in a single month, furniture 0.9 percent. Coffee costs almost 15 percent more than last year - due to crop failures, but also because of import duties on Brazilian goods. Almost the entire US coffee supply is based on imports.

Behind the scenes, the Bureau of Labor Statistics, guardian of inflation data, is faltering. Trump fired its chief Erika McEntarfer after a weak jobs report and installed conservative economist E.J. Antoni, a sharp critic of previous statistical practices. A hiring freeze in the civil service also forces the agency to collect fewer data points - about 18 percent fewer price quotations than at the beginning of the year, which will likely increase volatility. For companies like Princess Awesome, a small family fashion brand, the tariff regime is a fight for survival. Costs have risen by up to 20 percent, says co-founder Rebecca Melsky. Producing in the US? Unaffordable for their specialty fabrics. So they ask customers for voluntary contributions - a digital “tip jar” in their online store. Big players react more directly: Procter & Gamble is raising prices in August by mid-single-digit percentages on a quarter of its products, Walmart follows. E.l.f. Beauty, a cosmetics maker with production in China, added a flat dollar to every product at the beginning of the month - only the third price increase in 21 years. The official inflation figure is still holding up under the pressure, because cheap gas fills and falling rents flatter the balance. But the tectonic shift is underway: according to Goldman Sachs, foreign manufacturers are currently passing on only 14 percent of the tariffs to their prices, while US companies are bearing 64 percent of the burden. By fall, the forecast says, consumers will have to shoulder two-thirds of the costs. Trump’s bet that foreign countries would pay for his trade policy is losing credibility - and every supermarket checkout becomes proof that this tariff roulette ultimately lands in the wallets of Americans.

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