Top economist drops 6-word verdict on Trump tariffs, inflation

Inflation is ticking higher, and President Donald Trump's tariffs are back in the spotlight.

Recent data points to a marked shift in key consumer categories, with some prices rising quicker than forecasted.

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As the debates get hotter over trade policy and wage trends, one major economist points to subtle patterns emerging in the numbers.

Although investors look for clarity on the Fed’s interest rate cuts, the real story may be brewing beneath the surface.

What this economist just said about where things are headed raises quite a few eyebrows, to say the least.

An economist weighs in as tariffs and inflation trends unfold.

Image source: Kent Nishimura/Getty Images

Tariffs are now showing up in inflation data

The inflation engine has kicked into high gear, and tariffs are throwing fuel on the fire.

A glance at the June inflation report shows the consumer price index (CPI) climbing to 2.7% year-over-year from 2.4% in May, the worst reading in four months.

Core inflation rose to 2.9%. Moreover, heavily tariffed goods like appliances, furniture, and toys are leading the charge.

That’s what we call textbook “tariff pass-through,” where import costs are trickling right into price tags.

But that’s only part of the picture.

Bond markets have been flashing warnings as well, with five-year breakeven rates breaching the 2.5% mark. That’s Mr. Market betting the pain isn’t over.

And it’s not just goods. Services inflation, making up roughly 60% of CPI, hasn’t surged yet, but the signs are building.

Labor-intensive sectors, including health care, education, and hospitality, are also facing major cost pressures, especially as immigration restrictions and deportation policy drive up wages.

On top of that, the June report also showed CPI rose 0.3% month-over-month, up from 0.1% in May.

Core CPI ticked up 0.2%, another sign that price gains are broadening, not fading. At the same time, growth is slowing. That's setting the stage for a worrying stagflation scenario.

That’s essentially high inflation paired with economic stagnation. Also, GDP growth in 2025 could be cut by 50% from last year’s pace, while the unemployment rate starts creeping up.

The Fed’s caught in the middle of all this mess, with inflation too hot to cut rates, but growth may be too weak to sit tight much longer.

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Against this backdrop, the odds of a July cut have tanked to 2.6%, and even September looks tricky.

Tariffs, once a tool to help domestic manufacturing, are now an undeniable inflation lever.

Economist warns tariffs are fueling inflation surge

“We have really only had the take-off stage.”

That’s the six-word verdict from Apollo’s chief economist Torsten Sløk on where U.S. inflation is headed.

Sløk feels the worst impacts of President Trump’s tariffs still lie ahead.

Prices, he warns, will continue to rise until inflation peaks later this year, possibly around November or December.

For now, inflation is already moving quickly, as discussed earlier.

Goods inflation is clearly accelerating as well, especially in tariff-heavy categories. Sløk also says services inflation will be the next shoe to drop.

Mass deportations and tighter immigration rules constrict the labor pool, pushing wages up. Naturally, that leads to costlier services, and those price hikes haven’t fully arrived yet.

Sløk also flagged a broader risk of stagflation — the toxic mix of high inflation and weak growth.

He already sees the early signs emerging: GDP growth in 2025 could be cut in half, while inflation stays near 3%. Unemployment, he adds, may begin to creep up as businesses buckle under the pressure.

That scenario leaves the Federal Reserve stuck in the mud. Sløk doesn’t expect rate cuts any time soon.

Also, the Fed needs to see the broader impact of tariffs and the inflation peak before making any move.

For now, rate policy seems mostly frozen. Inflation is rising, while growth is slowing.