While I write this, a lot of digital ink is spilled on the inflationary pressure of the last rates round of Trump on Mexico, Canada and China. These are our three largest trading partners, who represent huge amounts of goods in many industries and sectors that affect both American consumers and American companies. Price problems are legitimate. But we must distinguish between prices and inflation. Rates will cause a one -off increase in prices, but everything else that is the same will not continue to rise. The rates of 2018 about washing machines give a good example.
In 2018, President Trump imposed rates on washing machines. Prices of course jumped in 2018, both to the consumer (such as measured by the CPI) and the producer side (measured by the PPI). The full amount of the rate was passed on to Americans. After this first, however, the prices returned to the long -term trends of the Algemeen. Rates did not cause long -term prices. As soon as the rate was fully capitalized in the price, the market forces resumed it and the trend returned in the long term. This is exactly what we should expect. A tax shifts the curves and causes a one -time jump into the price, but as soon as the shock passes, the trend is resumed in the long term.
This is a graph that I made from the consumer price index of washing equipment (source: Bureau or Labor Statistics, Series ID: CUSR00S30021):
Note that from 2013 the prices for washing machines started to fall, a trend that would be continuously until the rates were imposed in 2018. The rate was imposed and prices rose. As soon as the rates were completely in prizes at the end of 2018, the trend was resumed. Then 2020 of course and, with inflation, the trend was reversed. It is fairly easy to see with this graph that rates have not reversed the overall trend, but it shifts the trend upwards. Consumers still saw the prices of the washing machine fall, but the prices were still higher than they would otherwise have been without the rate.
Fast forward to 2025. We have to expect that these new wide rates will cause an increase in prices in the short term. Given the broad nature of these rates, the increase in costs for both consumers and producers will probably even appear temporarily in inflation figures. But it would be a mistake to call these rates inflationary. The rates will be incidental for any inflationary pressure, not causal. The bloated balance of the Federal Reserve will be a primary cause of inflation.