There's ‘no evidence' of tariff inflation, top Trump aide says. Is he right?

White House economic advisor Stephen Miran, also a Fed nominee, claims there is no evidence of tariff-induced inflation and that price growth remains 'well behaved.' This contrasts with recent data showing the Consumer Price Index up 2.7% over 12 months and core inflation at 3.1%, with notable price increases concentrated in tariff-impacted goods like furniture and appliances, which saw price hikes after previous declines. While some tariff costs have been absorbed by companies, economists largely anticipate these expenses will eventually be passed to consumers, potentially accelerating broader inflation, though consumer resistance may temper the overall impact, creating a nuanced outlook for future price stability.

Analysis

A significant divergence exists between the White House's official stance and recent economic data regarding inflation. Stephen Miran, a top economic aide and Federal Reserve nominee, asserts there is "no evidence" of tariff-induced inflation, a position that supports the administration's call for interest rate cuts. However, this claim is contradicted by the latest Consumer Price Index, which shows headline inflation accelerating to 2.7% and core inflation rising to 3.1%. The data indicates this uptick is driven by goods directly affected by tariffs, with the cost of goods rising 1.2% over the past year, reversing declines seen in 2023 and 2024. Specific categories like furniture have seen prices jump 7.6%. Currently, the full inflationary impact of the $68 billion in additional customs revenue appears to be muted because both foreign and domestic companies are absorbing these costs, aided by record-high profit margins. Economists are divided on the outlook: some, like Comerica's Bill Adams, expect companies will inevitably pass these costs to consumers, while others, like Jefferies' Thomas Simons, believe heightened consumer price sensitivity will limit firms' pricing power and contain inflation.

Key Decisions for Investors

• Monitor core goods inflation and the profit margins of import-heavy firms in sectors like consumer durables, as these are the first indicators of whether tariff costs are being passed through to end markets.
• Factor in the heightened policy uncertainty stemming from the conflict between the administration's pressure for rate cuts and the Federal Reserve's data-driven concerns about inflation, which could lead to increased interest rate volatility.
• Assess consumer demand elasticity in response to initial price hikes, as consumer resistance could cap inflation, whereas continued spending would validate further price increases and signal a more persistent inflationary trend.