Tariffs Are Starting to Cause Inflation. Just Look at This Week’s Data.

The evidence of tariff-related inflation pressures is starting to mount. Consumers will pay the price. (Spencer Platt / Getty)

The White House says that tariffs haven’t caused inflation in the world’s biggest economy, but a series of recent data releases this week could soon challenge that view.

Import prices rose by 0.4% in July, data from the Bureau of Labor Statistics indicated Friday, with higher costs for goods driving the biggest gain in the monthly reading in more than a year. While the prices measured in this report exclude the costs of tariffs that are tacked on after they arrive at U.S. ports, the numbers suggest exporters aren’t lowering prices to compensate importers for higher tariffs.

Earlier this week, Stephen Miran, President Donald Trump’s nominee for a spot on the Federal Reserve’s Board of Governors, told CNBC that he’s seeing “no evidence whatsoever of tariff-induced inflation.” His remarks, which followed a mixed set of figures from the Bureau of Labor Statistics’s July consumer price index, echo the president’s view that “tariffs have not caused inflation, or any other problems for America, other than massive amounts of cash pouring into our Treasury’s coffers.”

While Trump’s statement about tariff revenue is certainly true, other data suggest the impact on inflation is starting to become clearer.

The BLS’s July reading of factory gate inflation, published Thursday, also suggested a steep increase in the cost of manufacturing, in terms of both goods and services, that fanned inflation concerns and blunted the S&P 500’s searing summer rally.

Data from the Commerce Department, meanwhile, showed retail and food services spending rose 0.5% to $726.3 billion in July.

That tally, however, doesn’t adjust for changes in inflation, so the increase is both a measure of spending volume and higher prices. With nominal spending up 3.9% from year-ago levels in July, faster than the 2.7% rate for headline inflation, it’s safe to assume that consumers are still comfortable spending for now at least.

That said, clothing sales, which are highly sensitive to tariff changes given the U.S. reliance on Asia-based supply chains, were up 7.4% from last year, while restaurant spending fell 0.4%, indicating some caution about discretionary spending.

“Going forward, investors should monitor auto sales and other discretionary categories such as restaurant spending to gauge consumer health,” said Jeffery Roach, chief economist for LPL Financial.

That hesitancy was echoed in the University of Michigan’s benchmark August survey of consumer sentiment, which fell to the lowest level in three months. One-year and five-year inflation expectations, which are also measured in the survey, jumped higher.

“That suggests that households remain very nervous about rising inflation in the wake of President Trump’s latest volley of reciprocal tariff hikes,” said Capital Economics North American economist Paul Ashworth.

Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, said that while the retail sales data were largely solid, a rougher road lies ahead.

“A weak labor market and further tariff-related increases in goods prices mean that real incomes essentially flatline,” he cautioned.

Economists at Leuthold Group estimate Trump’s plans announced earlier this month have boosted the overall effective tariff rate to between 18% and 19%, which would be up from around 3% in August of last year. The BLS’s August CPI reading, which will be published on Sept. 11, is likely to reflect at least part of that increase.

“Foreign sellers have not materially lowered their prices to at least partially absorb the impact of higher tariffs,” Chun Wang, senior research analyst and co-portfolio manager at Leuthold Group said. “This doesn’t bode well for the U.S. CPI going forward.”

Write to Martin Baccardax at martin.baccardax@barrons.com