Trump just said he solved inflation. But prices are rising - in part because of his policies

The latest Consumer Price Index data for August shows accelerating inflation, with the annual rate climbing to 2.9%, the highest since January, contradicting recent presidential claims. This uptick is largely driven by the impact of higher import tariffs and stricter immigration enforcement, which are increasing labor and goods costs. Notably, grocery prices rose 0.6%, while specific categories like coffee surged 20.9% annually due to tariffs, and jewelry saw a 6.8% monthly increase. Economists anticipate further firming of consumer inflation in the coming months as the full effects of these policies, currently somewhat mitigated by business absorption and inventory stockpiling, increasingly pass through to consumers.

Analysis

Recent data contradicts presidential claims of solving inflation, revealing an acceleration in consumer price increases. The Consumer Price Index (CPI) for August rose 0.4% month-over-month, elevating the annual inflation rate to 2.9%, its highest level since January. This upward trend is primarily attributed to administration policies, including higher import tariffs and stricter immigration enforcement. Economists note that tariff pass-through is becoming more evident in specific categories; for example, coffee prices surged 20.9% year-over-year following a 50% tariff on Brazilian imports, and jewelry prices saw a record 6.8% monthly jump. Concurrently, a reduction in the immigrant labor force, with an estimated 750,000 workers leaving since January, is driving up labor costs and prices in sectors like agriculture and food services. While the full impact has been partially mitigated by businesses absorbing costs and utilizing stockpiled inventory, the consensus among analysts from firms like Fitch and JPMorgan is that these are temporary buffers. The expectation is for a continued firming of consumer inflation in the coming months as the full effects of these policies materialize on retail shelves.

Key Decisions for Investors

• Investors should scrutinize companies in the consumer discretionary, staples, and retail sectors, particularly those with high import exposure from regions like Brazil and Mexico, for signs of margin compression as tariff and labor costs continue to rise.
• Monitor upcoming CPI reports and corporate earnings calls for evidence of accelerated cost pass-through to consumers, as the current absorption of costs by businesses is likely temporary and could precede a sharper-than-expected inflation spike.
• Given that inflationary pressures are policy-driven and expected to persist, consider adjusting portfolios to hedge against sustained inflation and re-evaluating risk in sectors most exposed to ongoing trade and immigration policy uncertainty.