Where is the tariff inflation?

With all the talk about tariffs and their would-be effect on inflation, statistics that report inflation are surprisingly tepid. We consumers dug in our heels and held on to the handlebars waiting for the massive increase in prices we were assured would come, yet all we got was a cool breeze. What happened to all those massive tariff increases that were supposed to jack up prices? The cost increases we were told to expect were massive. Some tariffs were rumored to more than double the price we paid for stuff. Although profiled here in Money Matters multiple times, and reiterated today, despite the recent statistics that seem to reflect only modest price increases, the U.S. consumer will not escape a much bigger tariff hit. My opinion, of course. In large economies, and the U.S. is the largest, any change in a monetary event takes months, if not years, to work its way through the system. When the Feds raise interest rates, it takes at least six months or more for the change in rates to have an effect on consumer credit. Inflation itself ebbs and flows and any significant change in the things that cause inflation may not be felt for years. Unfortunately, if inflation is significant enough to make waves in the economy, its behavior resembles an out-of-control forest fire. Like a fire, once an inflationary inferno starts to burn hot, it's hard to put out. In addition, like a forest fire, there can be a lot of unburned fuel that appears harmless until it becomes part of the conflagration. The above analogy is meant to explain why we haven't seen the expected and egregious inflation from the tariffs just quite yet. But we will soon. Existing stuff on the shelves and in the warehouses first has to be bought, and when that happens, only then do companies have to order more. Even though tariffs were implemented on a wide variety of goods, the cost of the today's inventory had not been purchased under a tariff environment. As such, the prices at the retail level, even after the tariffs were implemented, might not be felt as the existing inventory had not been tariffed. When inventories fall, however, new orders are generated. Only then would the tariffs come into effect. And since the manufacturing, packaging and shipping all add time to the final arrival on store shelves, foreign goods, which are the only ones tariffed, might take many months to arrive here for sale. The bottom line is the existing inventory on our shelves today has to first be bought before more is ordered. And most of the stuff we are buying right now was probably purchased before the tariffs began. Only when it is replaced will the higher prices from tariffs become a reality. Even if some tariffs are lifted, the prices for the goods bought under the existing tariff environment will remain high until their replacements are, in turn, bought at normal prices again. That's if the tariffs are lifted at all. Even if they are, there will be a period where inventory will cost more if bought within a tariffed period. Federal Reserve Bank of Richmond President Thomas Barkin summed it all up two weeks back, when he said the central bank will likely not lower interest rates anytime soon due to the expected inflation the tariffs will eventually have. He expects the existing tariffs will have an effect on prices and push inflation further up in the weeks and months to come. Adding to his comments, Barkin said "… to date, these increases have only had modest effects on measured inflation, but I anticipate more is coming." I couldn't have said it better myself. This article expresses the opinion of Marc Cuniberti and is not meant as investment advice or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a BA in Economics with honors, 1979, and California Insurance License #0L34249. His insurance agency is BAP INC. insurance services. Email: news@moneymanagementradio.com