The (modest) impact of prices and deficits on inflation

Inflation starts up the United States. Therefore, The impact of customs duties and budget deficits is debated. In addition, The second seems underestimated. For example,

The prospects for lower inflation are endangered by the customs duties of the Trump administration. Meanwhile, by the budget deficit. However, In June, inflation went upwards to reach 2.7% on an annual basis, compared to 2.4% in May. Moreover, The underlying inflation (excluding energy and food) increased by 2.9%. In addition, These figures lead economists to assume that the increase in customs duties begins to have their effects. Nevertheless, Indeed. Similarly, according to the Wall Street Journal, the prices of furnishings, video and audio products, toys and clothing have increased significantly. Similarly, These four categories tend to be sensitive to customs duties. Furthermore,

Economists are struggling to (modest) impact prices deficits inflation assess the respective impacts of customs duties and public deficits. For example, The task is in itself very complicated. Consequently, It is made even more difficult through the authorities and economists. Therefore, Let us first take the case of public debt and then that of customs duties.

To avoid the reproach of the ideological bias, some refrain from using certain tracks. Furthermore, It is Robert Murphy, essayist and researcher at the Institut Misens, who reveals him on his Infeneo blog. In addition, The economist looks here at the estimates of the CBO (Congressional Budget Office). Furthermore, an organization of the American Congress renowned for its non -partisan analyzes.

“During the peak of inflation of 2022, the CBO was clearly cheated, notes Murphy”.

Not partisan but imprecise

As the CBO is non -partisan, its point of view should be indisputable. And since the CBO does not expect that the (modest) impact prices deficits inflation sharp increase in debt will not lead to a clear increase in inflation in the coming years. everyone is reassured. However, we will see that this concern for independence can be problematic. “The CBO” says that he does not expect a clear increase in inflation in the next five years. but he does not say that there will be no long -term inflation problem, “said Murphy. The economist explains that the CBO would not be allowed to provide a vicious circle of debt and inflation. By nature, he prevents himself from doing politics. As there are different schools of thought on the effects of public debt on inflation. the CBO avoids the problem and is based on the prospects of the Fed. This reasoning has already played tricks on him. During the peak of inflation of 2022, the CBO was clearly cheated, notes Murphy. In February 2021, he expected an (modest) impact prices deficits inflation increase in inflation of 2.2% in 2022 and 2.3% in 2023. In reality, the price increase jumped 7.1% in the last quarter 2022 and 3.2% in 2023.

The effect of budget deficits is regularly the subject of academic work. The Marginal Revolution blog also quotes a recent research work, “Do deficits cause inflation?” (June 2025). Jonathon Hazell and Stephan Hobler show that the 2021 deficits caused “around 30% of inflation in 2021 and 2022. The authors use narrative data from investment banks. It therefore appears that budgetary deficits are one cause among others of inflation, but a cause all the same significant.

The effect of customs duties

Customs duties are also part of the price increases that it is difficult to understand. For the moment. before the results of this summer “negotiations”, economists expect an increase in prices that are low enough for the second half.

According to (modest) impact prices deficits inflation the latest survey of the Wall Street Journal, led between July 3 and 9 with 69 economists, inflation should increase by 0.7 points in the 4th quarter due to customs duties. The price increase should therefore reach 3% in December, after being planned at 3.6% in April.

The evaluation is also made difficult by the strong accumulation of purchases of consumers intervened before the entry. into force of the prices. In the first quarter, American imports of goods increased by 26%. Uncertainty also continues to relate to the level of prices imposed on different countries.

“The impact of inflation prices should, a bit like an increase in VAT, remain temporary.”

The impact of inflation prices should, a little like an increase in VAT, remain temporary.

The Fed recognizes that it is rather restrictive on the basis of the last statistics. but Jerome Powell justifies itself by pointing (modest) impact prices deficits inflation to the increase in inflation to come in the coming quarters.

The White House does not share its fears. Oren Cass. a craftsman from Donald Trump’s pricing program, believes that the prices are outside the Fed’s mandate and that in any case they will not increase the prices. The question remains: will the impact of customs duties be only oneic? It depends on their effect on economic growth factors, puts Bryan Cutsinger, on the Blog of the Institut Misens. Prices should reduce long -term productivity by increasing production costs and limiting access to more efficient foreign producers. Customs duties therefore cause distortions in the allocation of resources. But the impact on prices should be modest if the expenses were kept at the same rate.

Monetary policy unchanged

The problem here comes from the shock of the offer induced by the prices. Prices are not increasing as a result (modest) impact prices deficits inflation of an increase in demand but a drop in supply compared to. the situation before the prices. The appropriate reaction of the Fed depends on its appreciation of the duration of this shock of the offer. advances Cutsinger. If it tightened its monetary policy to combat the increase in inflation. it would only do it by weighing more on activity. In his opinion. even if customs duties decreased the GDP by half a point, which seems a lot, inflation would be increased by at most 0.5 points, he concludes. Customs duties should therefore not lead to a change in monetary policy.