Has the inflation "tsunami" that global markets were waiting for failed to materialize? Did Trump's tariffs amount to little more than a lot of noise?
2025-12-18 09:50:45
Millions of American consumers have been waiting for President Trump's tariffs to trigger a sharp rise in consumer prices, pushing inflation into dangerous territory. They are still waiting.
The annual inflation rate reached 3% in September, the highest level since Trump aggressively imposed tariffs months ago. Analysts expect the inflation rate to remain around 3%, with the relevant data to be released later on Thursday (December 18).
But many Americans expect tariffs to significantly push up inflation. Economist Bill Adams said, "The good news is that the impact of tariffs on the economy is smaller than it appears."
A University of Michigan survey in May showed that consumers expect prices to rise by 6.6% over the next year.
The Philadelphia Fed's third-quarter 2025 business survey shows that businesses expect prices to rise 4.7% next year.
These alarming predictions all revolve around tariffs. Tariffs are essentially a form of tax, and businesses typically pass on at least some of the costs to consumers.
When Trump announced a comprehensive tariff increase in April, many business leaders braced themselves for a severe inflationary shock.
Walmart CFO John David Rainey said in May, "The magnitude and speed of these price fluctuations are unprecedented in some respects."
Seven months later, it seems that this storm may not break out.
At a press conference on December 10, Federal Reserve Chairman Jerome Powell suggested that the U.S. would have little to worry about tariff-induced inflation in the coming months.
Powell said tariff-related inflation should peak in early 2026. He said its impact "should not be very large," possibly "only a fraction of a percentage point, or even less."
In other words, the Federal Reserve Chairman expects tariffs to have a negligible impact on consumer prices by 2026.
A 3% inflation rate is not ideal. The Federal Reserve's inflation target is 2%. But this figure isn't particularly bad either. Economists point out that when policymakers refer to an inflation "crisis," they usually mean an annual inflation rate of 5% to 10% or even higher.
Will the inflation crisis return? How much have tariffs already driven up prices? Will tariffs further fuel inflation in 2026? Why didn't 2025 trigger more severe inflation? Let's explore these questions one by one.
When it comes to inflation, anything can happen. However, as 2025 draws to a close, few expect a surge in consumer prices in 2026 .
Consumers have calmed their worst fears about inflation. According to a November survey by the New York Federal Reserve, average shoppers now expect prices to rise 3.2% over the next year.
Economists predict that inflation will gradually fall to 2.6% by 2026, a forecast based on a November poll by the National Association for Business Economics.
Most economists never worried about an inflation crisis. When the tariff war peaked in April, the same NABE survey predicted inflation would rise to a relatively modest 3.4% by the end of 2025. Now, most forecasts are even lower. For example, Oxford Economics expects inflation to slow to 2.2% by the end of 2026, just slightly above the Federal Reserve's target.
Grace Zwimmer, associate economist at Oxford Economics, said inflation is "near its peak."
According to a paper released by the National Bureau of Economic Research in November, tariffs have led to a rise of approximately 0.7 percentage points in the U.S. inflation rate. In other words, if tariffs were removed, September's inflation rate should have been closer to 2% rather than 3%.
“The gap is quite large,” said Alex Hax, policy and advocacy director at the left-leaning nonprofit Groundwork Collaborative.
From another perspective, according to an analysis by the nonpartisan Tax Foundation, Trump's tariff policies are equivalent to adding an extra $1,100 to the tax burden for each American family in 2025, and that figure will increase to $1,400 by 2026.
According to the Tax Foundation, Trump's tariff policy is the largest tax increase since 1993.
Most forecasts indicate that tariffs will continue to push up prices until the first few months of 2026, but the increase will be limited.
Federal Reserve Chairman Jerome Powell said on December 10 that he expects tariff-induced inflation to peak around the first quarter of 2026, with minimal subsequent impact on the inflation rate .
Other economists share this view. Adams of Comercial Bank stated, "The inflationary pressures from tariffs are still being transmitted through the supply chain, and this process is likely to finally reach consumers in the first half of 2026."
However, Adams predicts that inflation will "stabilize at around 3%" in the coming months.
But other forecasters warn that the impact of tariffs is far from over. Chief economist Chris Rupkey noted, "Business after business is telling us they are still absorbing most of the price shock from imported goods."
Some pessimistic forecasts about tariffs and inflation have assumed that American consumers will bear the brunt of the impact of these taxes.
However, this situation cannot be simply generalized. According to research by the National Bureau of Economic Research, only about 20% of the tariffs imposed during the Trump era were ultimately passed on to consumers .
As imported goods travel from their country of origin through U.S. retailers to consumers, their price impact diminishes at each stage. Adams points out that exporters accept lower prices when selling products to U.S. manufacturers and merchants.
According to Jacques of the Basic Cooperation Organization, U.S. retailers are "either unable or unwilling to pass on all tariff costs to consumers," partly due to concerns about losing customers. Some businesses are instead sourcing the same products at lower prices from countries with lower tariffs.
Finally, Trump also rescinded some of the tariffs he had imposed himself, mitigating the impact on consumers. The report states that currently about half of all U.S. imports enter the country duty-free.
Trump's tariff policy, through the transmission path of "expected shock - incomplete cost pass-through - limited increase in actual inflation," did not trigger the initially feared severe inflation crisis. Its impact on the dollar is a double-edged sword .
In the short term, the impact of actual inflation is moderate and under control, posing no significant threat to the value of the US dollar. During Thursday's early Asian trading session, the US dollar index fluctuated narrowly around 98.35.
In the medium to long term, tariffs may support the dollar through potential industrial repatriation, but their erosion of household purchasing power (equivalent to implicit taxes) constitutes a micro-level reduction in the domestic value of the dollar.
Ultimately, the dollar's exchange rate depends more on the combined interaction of tariff policy with the Federal Reserve's monetary policy, economic growth prospects, and global capital flows than on a single channel of tariff inflation. Current textual evidence suggests that tariff-induced inflation concerns have eased significantly, reducing the risk of tariffs exerting major downward pressure on the dollar.
(US Dollar Index Daily Chart, Source: FX678)
At 9:50 AM Beijing time, the US dollar index is currently at 98.43.
The annual inflation rate reached 3% in September, the highest level since Trump aggressively imposed tariffs months ago. Analysts expect the inflation rate to remain around 3%, with the relevant data to be released later on Thursday (December 18).
But many Americans expect tariffs to significantly push up inflation. Economist Bill Adams said, "The good news is that the impact of tariffs on the economy is smaller than it appears."
Trump's tariff policies have sparked serious inflation concerns.
A University of Michigan survey in May showed that consumers expect prices to rise by 6.6% over the next year.
The Philadelphia Fed's third-quarter 2025 business survey shows that businesses expect prices to rise 4.7% next year.
These alarming predictions all revolve around tariffs. Tariffs are essentially a form of tax, and businesses typically pass on at least some of the costs to consumers.
When Trump announced a comprehensive tariff increase in April, many business leaders braced themselves for a severe inflationary shock.
Walmart CFO John David Rainey said in May, "The magnitude and speed of these price fluctuations are unprecedented in some respects."
The worst fears did not come true.
Seven months later, it seems that this storm may not break out.
At a press conference on December 10, Federal Reserve Chairman Jerome Powell suggested that the U.S. would have little to worry about tariff-induced inflation in the coming months.
Powell said tariff-related inflation should peak in early 2026. He said its impact "should not be very large," possibly "only a fraction of a percentage point, or even less."
In other words, the Federal Reserve Chairman expects tariffs to have a negligible impact on consumer prices by 2026.
A 3% inflation rate is not ideal. The Federal Reserve's inflation target is 2%. But this figure isn't particularly bad either. Economists point out that when policymakers refer to an inflation "crisis," they usually mean an annual inflation rate of 5% to 10% or even higher.
Will the inflation crisis return? How much have tariffs already driven up prices? Will tariffs further fuel inflation in 2026? Why didn't 2025 trigger more severe inflation? Let's explore these questions one by one.
Is an inflation crisis still possible?
When it comes to inflation, anything can happen. However, as 2025 draws to a close, few expect a surge in consumer prices in 2026 .
Consumers have calmed their worst fears about inflation. According to a November survey by the New York Federal Reserve, average shoppers now expect prices to rise 3.2% over the next year.
Economists predict that inflation will gradually fall to 2.6% by 2026, a forecast based on a November poll by the National Association for Business Economics.
Most economists never worried about an inflation crisis. When the tariff war peaked in April, the same NABE survey predicted inflation would rise to a relatively modest 3.4% by the end of 2025. Now, most forecasts are even lower. For example, Oxford Economics expects inflation to slow to 2.2% by the end of 2026, just slightly above the Federal Reserve's target.
Grace Zwimmer, associate economist at Oxford Economics, said inflation is "near its peak."
How much have tariffs already caused prices to rise?
According to a paper released by the National Bureau of Economic Research in November, tariffs have led to a rise of approximately 0.7 percentage points in the U.S. inflation rate. In other words, if tariffs were removed, September's inflation rate should have been closer to 2% rather than 3%.
“The gap is quite large,” said Alex Hax, policy and advocacy director at the left-leaning nonprofit Groundwork Collaborative.
From another perspective, according to an analysis by the nonpartisan Tax Foundation, Trump's tariff policies are equivalent to adding an extra $1,100 to the tax burden for each American family in 2025, and that figure will increase to $1,400 by 2026.
According to the Tax Foundation, Trump's tariff policy is the largest tax increase since 1993.
Will tariffs in 2026 trigger more severe inflation?
Most forecasts indicate that tariffs will continue to push up prices until the first few months of 2026, but the increase will be limited.
Federal Reserve Chairman Jerome Powell said on December 10 that he expects tariff-induced inflation to peak around the first quarter of 2026, with minimal subsequent impact on the inflation rate .
Other economists share this view. Adams of Comercial Bank stated, "The inflationary pressures from tariffs are still being transmitted through the supply chain, and this process is likely to finally reach consumers in the first half of 2026."
However, Adams predicts that inflation will "stabilize at around 3%" in the coming months.
But other forecasters warn that the impact of tariffs is far from over. Chief economist Chris Rupkey noted, "Business after business is telling us they are still absorbing most of the price shock from imported goods."
Why didn't tariffs trigger more severe inflation?
Some pessimistic forecasts about tariffs and inflation have assumed that American consumers will bear the brunt of the impact of these taxes.
However, this situation cannot be simply generalized. According to research by the National Bureau of Economic Research, only about 20% of the tariffs imposed during the Trump era were ultimately passed on to consumers .
As imported goods travel from their country of origin through U.S. retailers to consumers, their price impact diminishes at each stage. Adams points out that exporters accept lower prices when selling products to U.S. manufacturers and merchants.
According to Jacques of the Basic Cooperation Organization, U.S. retailers are "either unable or unwilling to pass on all tariff costs to consumers," partly due to concerns about losing customers. Some businesses are instead sourcing the same products at lower prices from countries with lower tariffs.
Finally, Trump also rescinded some of the tariffs he had imposed himself, mitigating the impact on consumers. The report states that currently about half of all U.S. imports enter the country duty-free.
The impact mechanism of Trump's tariff policies on the dollar and inflation
Trump's tariff policy, through the transmission path of "expected shock - incomplete cost pass-through - limited increase in actual inflation," did not trigger the initially feared severe inflation crisis. Its impact on the dollar is a double-edged sword .
In the short term, the impact of actual inflation is moderate and under control, posing no significant threat to the value of the US dollar. During Thursday's early Asian trading session, the US dollar index fluctuated narrowly around 98.35.
In the medium to long term, tariffs may support the dollar through potential industrial repatriation, but their erosion of household purchasing power (equivalent to implicit taxes) constitutes a micro-level reduction in the domestic value of the dollar.
Ultimately, the dollar's exchange rate depends more on the combined interaction of tariff policy with the Federal Reserve's monetary policy, economic growth prospects, and global capital flows than on a single channel of tariff inflation. Current textual evidence suggests that tariff-induced inflation concerns have eased significantly, reducing the risk of tariffs exerting major downward pressure on the dollar.
(US Dollar Index Daily Chart, Source: FX678)
At 9:50 AM Beijing time, the US dollar index is currently at 98.43.
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