Thursday, May 15, 2025

Not much inflation yet from tariffs other than coffee

After Donald Trump announced widespread tariffs in early April, this week's inflation reports would tell us if prices were rising as a result. Well, Tuesday's CPI report seemed pretty good. And interestingly, what kept the CPI down in April was a sizable expense that had been rising in previous months – groceries.

Food at home declined by 0.4% after a 0.5% increase in March, and leading the way down was a product that had risen by nearly 1/6 in the 2 months prior to April.
…Five of the six major grocery store food group indexes decreased in April. Driven primarily by a 12.7-percent decrease in the index for eggs, the index for meats, poultry, fish, and eggs fell 1.6 percent in April after rising in recent months. The fruits and vegetables index decreased 0.4 percent over the month and the cereals and bakery products index declined 0.5 percent. The index for other food at home decreased 0.1 percent in April and the index for dairy and related products fell 0.2 percent. In contrast, the nonalcoholic beverages index increased 0.7 percent over the month.
Yes, eggs are still up nearly 50% in the last 12 months, but at least we got a month of declines to retrace what we’d been seeing at the start of 2025.

The biggest notable increase in grocery prices for April came with another product that often gets consumed in the morning. Coffee went up 2.4% last month, and has gone up more than 5% in the last 3 months. Some of this is due to droughts and floods in coffee-producing countries that has caused a shortage of supply, but we are also likely starting to see the effects of Trump tariffs, as most coffee in America has to be imported from other places.

The tariff hit is even coming to coffee places in Wisconsin, as shown in this Wisconsin Public Radio article from this week.
TJ Semanchin is a co-owner of Wonderstate Coffee, a Viroqua-based company with four locations throughout Wisconsin. He told WPR’s “Wisconsin Today” that recently-imposed tariffs from the Trump administration could spike the price the company pays for beans from countries like Nicaragua by as much as 28 percent.

The Trump administration has currently imposed 10 percent tariffs on goods from most countries. As part of a package of “reciprocal tariffs,” it also proposed a range of different tariffs on individual countries, including an 18 percent tariff on Nicaragua…

Coffee can only be grown in tropical environments, limiting the ability for farmers to grow coffee beans at scale in the United States. More than 99 percent of coffee consumed in America is imported, according to the National Coffee Association of USA.

Wonderstate Coffee purchases beans from Peru, Colombia, Guatemala and Mexico among other countries. Semanchin said even a 10 percent tariff is a significant dollar figure for his business to pay.

“For us, a container of coffee might cost around $200,000. So that tariff tax, if it stays at 10 percent, will be $20,000. That’s an additional $20,000 that we need to come up with. I’m literally borrowing that money from our bank to pay that tax,” Semanchin said. “We get hit with that upfront, and then as we absorb those costs, eventually we are going to have to look at increasing prices again.”
But I awaited Thursday’s report on the Producer Price Index to see if the tariffs were boosting prices for other businesses. And that was certainly NOT the case.
The Producer Price Index for final demand fell 0.5 percent in April, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices were unchanged in March and increased 0.2 percent in February. On an unadjusted basis, the index for final demand rose 2.4 percent for the 12 months ended in April.

The April decline in the index for final demand is attributable to prices for final demand services, which decreased 0.7 percent. The index for final demand goods was unchanged.

Prices for final demand less foods, energy, and trade services edged down 0.1 percent in April, the first decline since falling 0.8 percent in April 2020. For the 12 months ended April 2025, the index for final demand less foods, energy, and trade services advanced 2.9 percent.
Now a lot of the drop in services is due to a drop in margins for wholesalers and retailers, and maybe that’s a tariff effect due to an inability to pass on higher costs. But I’ll also note that there was a second straight month of declines in the PPI’s index of food prices, which has unwound increases in producer costs of food for the first 2 months of 2025.

Eggs led the way in the decline, with a drop of more than 39%, and the added spike in egg prices that we had at the start of 2025 has now faded, at least for producers.

However, I’ll note that PPI for coffee went up another 1.9% in April after rising 2.0% in March, and coffee is up more than 20% for producers in the last 12 months. So don’t be expecting any relief from higher coffee prices at the store or in restaurants any time soon.

The only other places I’m seeing significant jumps in Producer Prices is for steel mill products (up 5.9% in April and 16.5% in the last 3 months), and various other types of metals (several have had price increased between 7-10% in the last 3 months). But the bigger economic concern I draw from the PPI may be the fact that the prices of several unprocessed farm products are dropping, and the declines are speeding up.

That’s an awful lot like when Trump had his last trade war in 2018 and 2019, which led to large increases in farm bankruptcies due to lower prices and an inability to sell to other countries. And likely helps explain why Trump/GOP are trying to sneak through $60 billion in farm subsidies in their “big, beautiful” scam of a tax bill.

Maybe it’ll be tomorrow’s release of the import/export prices that definitely show an effect on product prices after Trump announced his tariffs. But at least for April, prices seemed to remain in check for many parts of the economy, even if the expectation of price increases was there.

1 comment:

  1. Interesting ad on local Madison radio. I'm paraphrasing, but it went like this :

    "Beat the tariffs! Come to (car dealer) and get your car before the tariffs raise prices! Our stock is tariff-free so come on out and get them before they're gone!"

    So maybe the price increases are yet to come for a lot of these products?

    ReplyDelete