Where's the inflation? Not in stores

It is one of those mysteries that drive economists and politicians a little bit crazy.

The Trump Administration is raising tariffs in a bid to reset world trade. Tariffs usually cause prices to rise, but, to paraphrase the late Clara Peller, where's the inflation?

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Probably it's on the way but slowly.

Business works that way. You can plug a lot of numbers into a spreadsheet and get immediate answers to questions like “How much inflation?” But the reality can and will be slow in emerging.

So, the Trump Administration is arguing there is no real inflation threat, and the Federal Reserve should cut interest rates. The Fed's federal funds rate is a 4.25% to 4.5%.

But critics will note that tariff increases only started in April, and goods coming into the United States might take two to three weeks to make the crossing from, say, Shanghai to Los Angeles.

Then, it takes time to get to the the customers' warehouse and mor time to arrive at their ultimate destination.

And if the retailer guesses that tariffs would boost costs and brought inventory in before the tariffs took effect, then the prices may not reflect the added costs.

Yet.

CPI and PPI reports expected to be subdued

So, two economic reports will test that theory this week: The Consumer Price Index report, due Tuesday, and the Producer Price Index report, due Wednesday.

Both are expected to show inflation ticking up slightly in June from May, though not by much. FactSet expects consumer prices to rise 0.23% on the month and 2.6% year-over-year. Excluding food and energy, the gains are expected to be as much as 3% year-over-year.

Lord knows, the government is collecting a lot of tariff revenue: $27.2 billion in June and more than $113 billion so far in the 2024-25 fiscal year. The fiscal year ends on Sept. 30.

A customer pushes a shopping cart at a Costco store in Vallejo, Calif., in May. Costco's pricing strategy has attracted new customers in droves.

Bloomberg/Getty Images

Why the delay for an effect on the CPI: Because, probably, retailers are waiting for as long as possible to boost prices. Toyota (TM) is planning to raise its prices by an average $270 per vehicle starting in July. Walmart (WMT) has already raised prices on toys and imported foods, like bananas.

Economists from Bank of America expect that a rise in core goods prices will be the main driver of the acceleration of inflation in June, Morningstar's Sarah Hansen wrote in a Friday article. They cited “broad-based price hikes … owing in part to tariffs.” They are also looking for an uptick in prices in the services category, including hotels and airfares, as well as in medical services.

At the same time, the Producer Price Index report, due Wednesday, also show some acceleration of costs as well. It's an early signal of what consumer inflation might look like. To produce and deliver goods takes energy, and the price of crude oil is up nearly 20% since their April bottom. But, again, it's early in the cycle.

Crude settled Friday at $68.45 per 42-gallon barrel and was up to $68.72 in Sunday evening trading.

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More reports to watch for

Weekly jobless claims report. Due Thursday. This measures worker filing for unemployment claims from the week before. It's a good early warning signal for the economy.

The Fed's Beige Book report. Due Wednesday afternoon. The narrative report surveys all of the Federal Reserve Bank districts and should offer some insight as what price pressures businesses are seeing what they're doing to cope.

Home builder confidence. Due Thursday from the National Association of Home Builders. This report has shown how frustrated builders are about the state of the housing market. The problem many builders find now is that mortgage rates are still relatively high and, combined with stubbornly high prices, makes selling a new home difficult.

Housing starts. Due Friday morning. This will quantify how active the new-home universe. Housing starts are a tricky number because they're imputed. Permits are a better gauge they measure approvals to start construction.