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Investing.com - The impact of U.S. President Donald Trump’s sweeping tariff agenda on prices could begin to show as soon as May, according to analysts at Morgan Stanley (NYSE:MS).
Writing in a note to clients, the brokerage flagged that, despite a recent spike in imports in the first quarter fueled by many businesses racing to avoid Trump’s levies, there was little indication of this so-called "front-running" for items like clothing and furniture.
This trend suggests that these segments could be vulnerable to tariff-induced inflationary pressures, the analysts said, although they added that they do not expect the levies to boost overall goods prices "meaningfully yet". The analysts anticipate that the U.S. consumer price index, a key tracker of inflation due out next week, rose by 2.8% in the twelve months to April, in line with the prior reading.
However, they "expect the inflationary impulse [from the tariffs] to begin to show in May prices and to peak this summer".
Markets will likely be keeping close tabs on inflation, particularly as the effects of Trump’s tariffs becoming clearer. Many economists have warned that the levies could push up prices, weigh on the labor market, and dent growth, while several businesses have said murkiness around the White House’s trade plans has made it difficult to plan out future investment decisions.
In the first quarter, U.S. gross domestic product contracted due largely to the surge in imports, although consumer spending and labor market indicators remained resilient.
Meanwhile, earlier this week, the Federal Reserve -- which is tasked with stabilizing inflation and maximizing employment -- warned of rising risks from inflation and unemployment. But the Fed left interest rates unchanged after its latest two-day meeting, with Chair Jerome Powell saying it was "not at all clear" what the appropriate response for monetary policy should be in response to the tariff uncertainty.
"The unwillingness to act until the data show clearer signs raise the hurdle for near-term cuts" to borrowing costs, the Deutsche Bank (ETR:DBKGn) analysts said. They predicted that the Fed will keep rates steady for the rest of 2025 before rolling out seven reductions starting in March 2026.