📝Tariffs Will Not Unleash Next Inflation Wave: ABN Amro

What is causing the delay in goods inflation? There are several reasons why we should not expect immediate price increases. Exporters, importers and retailers can absorb part of the tariffs in their margins. Moreover, as the Q1 GDP report showed, private inventories in Q1 rose by an amount that usually takes a full year. Facing uncertainty about whether tariffs will be there tomorrow, companies may therefore choose to wait to lock in big price changes until they are forced by declining inventories that contain an increasingly large share of tariffed imports. Higher household inflation expectations – University of Michigan one-year inflation expectations stand at 5.1% - make it easier for companies to pass through higher costs to consumers. At the same time, businesses are finding various ways to avoid the tariffs, as discussed in our latest global monthly. All-in-all, it is still likely that we’ll see core goods inflation shooting up over the summer, but demand effects are increasingly appearing to lower the ex-tariff inflation path. However, inflation is clearly not only demand driven – in fact, the month with the greatest increase in core goods spending saw the lowest core goods inflation - and supply plays an important role. - ABN Amro