Inflation Storm Brewing: Tariff Expiry and Middle East Tensions Could Push U.S. CPI to 4% by Summer
Analysts at Bloomberg Economics are raising alarms about a potential inflation surge this summer, driven by the convergence of two escalating risks:
1. Tariff Trouble Ahead
Key Trump-era tariff suspensions are set to expire soon.
This could trigger a return of tariffs on over $300 billion worth of goods.
The reintroduction of these levies risks disrupting global supply chains and reigniting trade tensionsโparticularly with China.
2. Middle East Oil Shock
Rising geopolitical tensions in the Middle East could send oil prices soaring past $130 per barrel (currently around $85).
Every $10 jump in oil prices is estimated to add 0.4 percentage points to U.S. CPI.
The timing is especially problematic, as the summer driving season is likely to magnify fuel price pressures.
๐ Inflation Outlook
CPI could hit 4% by August, up from the current 3.3%.
Fed rate cuts may be postponed until late 2024 or even into 2025.
Consumers could face a double hit from higher fuel costs and rising prices on imported goods.
๐ Market Reactions
Energy stocks are gaining in anticipation of higher oil prices.
Treasury yields are gradually rising as inflation expectations build.
Fed futures now reflect expectations of only 1.25 rate cuts in 2024, down from earlier projections.
๐ฏ Policy Crossroads
Policymakers now face a difficult balancing act:
Taming inflation
Avoiding a recession
Navigating politically sensitive decisions in an election year
With Trump pushing for new tariffs and Biden facing limited options to curb oil prices (given depleted strategic reserves), volatility in both markets and policy is expected to rise heading into the fall.
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