The tariff tussle initiated by the US President Donald Trump with an intention of punishing the countries that had disproportionate advantage while trading with US, has begun to hit the pockets of American consumers. Apparently, Trump used a strategic tool called as ‘tariffs’ to protect the American economy from foreign goods, boost domestic manufacturing and to ‘Make America Great Again’. However, in line with the skepticism expressed by many analysts, Trump’s tariffs have gradually begun to haunt the pockets of American consumers with prices of everyday essential commodities reaching record heights.
Drastic leap in wholesale and retail inflation
Both wholesale and retail inflation of the US economy has reached record heights in the month of July. Food prices were up by 2.9 per cent. The wholesale prices of fresh and dry vegetables has spiked by 40 per cent as per the month-on-month comparison. In the month of July wholesale inflation soared to a three-year high and retail inflation reached a six-month high, as per the month-on-month estimate.
With respect to year-on-year increase, wholesale inflation spiked by 3.3 per cent which is a three-year high. According to the estimates by Producer Price Index(PPI), a parameter used to analyze the average change in selling prices over a period of time, wholesale inflation has spiked by 0.9 per cent month-on-month in July. This is a drastic high compared to the previous estimates that had forecasted the price increase by 0.2 per cent.
As per the PPI analysts, the current trend in inflation signals further price multiplication in the coming months and consumers or households will ultimately bear the brunt of these price rises, as producers will likely pass on the heat of the inflation to the consumers. Americans are bound to suffer from the consequences of the inflation that is stimulated by a tariff tussle. Atleast in the coming months, there seems no escape mechanism for the American consumers from the irrational and sudden price rise, given that the tariff war is said to escalate between the US administration and other exporting countries.
“Points to pipeline inflation that’s likely to spill into consumer prices in the months ahead”, said Michelle Green, former Labor Department economist.
Basket of good bearing the brunt of tariffs
The Consumer Price Index(CPI) estimates that the prices of everyday essential commodities have been spiked. Prices of meat and poultry have soared by 5.8 per cent and 3.1 per cent respectively. Prices of eggs and coffee have seen a sharp rise by 16.4 per cent and 14.5 per cent respectively. Prices of coffee which is a staple in America is said to rise further, as they are predominantly imported and not grown in the country.
Prices of household electronic goods have also become costlier in the month of July. It has seen a month-on-month 5 per cent increase in July. Infact, the core inflation of the US economy(inflation calculated by excluding the prices of food and fuel) has breached the upper limit set by the federal reserve and has rose to 3.1 per cent. In the previous month core inflation was at 2.9 per cent which is far exceeding the federal limit of 2 per cent.
Stark inflation unraveling in the US economy is said to spike to even greater heights, as the full-stop to the tariff tussle cannot be expected in the foreseeable future. It is said that sellers will further pass on the burden of tariffs onto consumers and this is just the beginning. According to an analysis by the Goldman Sachs, currently the extent of tariff burden faced by the US consumers is 22 per cent. However, this is said to rise to 67 per cent, if the Trump administration further escalates the tariff war and doesn’t intend to plunge it down.
The unsound and illogical tariff percentages stimulated by Trump will catastrophically engulf the American economy and its middleclass consumers, if there is no space in the White House for rational, reasonable and balanced trade negotiations with the partner countries. Will the rising tariff rates and inflationary trends ‘Make America Great Again’, only time and Trump can decide.
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