American consumers could soon start feeling the pinch.
Official data released Wednesday showed that U.S. inflation rose at its fastest pace since 2012, offsetting modest pay increases, and economists cautioned that this will likely continue an upward trajectory as the trade war between the U.S. and China shows no sign of abating.
Consumer price inflation, which measures what Americans pay for a raft of items, increased at an annual pace of 2.9 percent in June on the back of higher oil and housing costs, according to the Labor Department. Core CPI inflation, which strips out volatile food and energy prices, ticked up from 2.2 percent to 2.3 percent in June.
Paul Ashworth, chief North America economist at Capital Economics, is predicting that core inflation has further to rise thanks to new levies on Chinese imports as the U.S. seeks to punish China for unfair trade practices.
Related Galleries
“The tariffs on Chinese imports imposed at the start of this month, with the prospect of more to come, will only add to that upward pressure,” he said.
Ashworth explained that while tariffs on a range of Chinese imports have yet to have any significant impact on the numbers, there are signs that it will change soon.
Indeed, the cost of goods leaving U.S. factories rose in June as recent tariffs on steel and aluminum have started putting upward pressure on firms’ input costs and “that will soon feed through to higher prices for consumer goods.”
Since the trade war between the U.S. and China began, the fear among industry watchers has been that retailers will be left with little choice but to pass on the higher costs to consumers, who are already starting to be squeezed by rising oil prices.
Some economists speculated that a weak yuan against the dollar may be able to help retailers partially offset levies, but it will not be enough if the tit-for-tar war continues. A full-blown trade war could derail the strong U.S. economy if more companies follow Harley-Davidson’s decision to move some operations outside the U.S., while further tariffs and potential Chinese trade barriers could push up prices across a broad range of sectors.
Until this week, the consumer had largely been protected from the trade war, but that changed Tuesday when the U.S. government published a new list of $200 billion worth of Chinese imports that will be hit with 10 percent levies in September.
It included a variety of consumer goods and fashion was no exception, with multiple items ranging from textiles to handbags to footwear and suitcases featuring on the list. Apparel prices actually dropped by 0.9 percent between May and June, while footwear price were 0.4 percent lower, but they will now no doubt face upward pressure in the coming months.
The list comes on top of the first wave of levies on $34 billion worth of Chinese imports that were implemented Friday, with another $16 billion earmarked for an unspecified later date. China retaliated immediately, placing levies on $34 billion worth of American imports.
And more could be on their way as President Trump has already pledged to slap tariffs on another $200 billion worth of Chinese imports if the Asian country makes another move, which, unsurprisingly, it has promised to do.