US inflation – taxes versus travel

Daily update

Trade talks between China and the US have concluded. The US side agreed to ask US President Trump to agree to revert to the Geneva agreement that agreed to calm tensions while a trade agreement was sought. Details were not forthcoming, and the extent of any further US concessions is not clear, but it seems that this establishes a framework for implementing the Geneva agreement rather than a new advance.
US May consumer price inflation is due. The data quality is deteriorating—a lack of resources means the Bureau of Labor Statistics is measuring fewer prices in fewer cities. This data does begin to faintly hint at the inflation consequences of Trump’s trade taxes.
On average, the US holds around three months of inventory of goods in its supply chain, meaning trade taxes hit consumer prices in late June. That is an average; so, some price rises will occur earlier, once pre-tax inventory has been sold. Some companies may have anticipated the effects of tariffs in their regular price setting cycle. Retailers’ profit-led inflation depends on perceptions rather than reality. Against that, disinflation may come in leisure travel, with dwindling visitor numbers.
South Korea’s early June export data showed growth, led by exports to Europe. Semiconductors and autos were the stronger sectors.