The May producer price index from the Bureau of Labor Statistics comes out Thursday — that's a measure of inflation for businesses. And on Wednesday, the BLS delivers the May consumer price index.
Like a lot of our colleagues who report on matters economic, we tend to pay a lot of attention to the top line number. But farther down the page, there's another line item: “commodities less food and energy commodities.” That's also known as core goods inflation — basically the change in the price of goods, except food and gas and other forms of energy, whose prices tend to be more volatile. And it’s one of the first places tariffs could show up.
Economist Leah Brooks is a professor at George Washington University. She’s also a parent, and her third grader just had an end of the school year party.
“Every parent bought some, like, small toy plastic item,” she said.
Her daughter came home with stickers, a little paddle board and ball, and one of those pens with lots of colors of ink.
Those are all core goods, and Brooks said a lot of them were likely imported. Which means tariffs could now be affecting their prices — maybe.
“It seems like firms are still negotiating with their suppliers,” she said. “And the tariffs themselves have been changing. Appearing. Disappearing.”
Core goods inflation has been mostly flat over the past couple of months, down 01.% in March, up 0.1% in April. But Morgan Stanley chief U.S. economist Michael Gapen predicts for the May reading, it’ll be up 0.3%.
“We're entering the window, if you will, where goods prices are likely to move higher as firms pass along the fact that they've had to pay tariffs to bring those products into the country,” he said.
Gapen said figuring out how much of a price increase to pass along to customers is a matter of trial and error.
“Businesses will tend to absorb some which weakens profitability, but they'll pass along as much as they can to the final consumer, which means inflation goes up,” he said.
When core goods prices do go up, people notice.
“You walk into the retailer and you see, oh, you know, they're not having as many sales, or they've increased their price on this,” said Alan Detmeister, senior economist and executive director at UBS.
And that could make consumers grumpy.
“I think the parents in my daughter's class like to be able to buy cheap pens on Amazon,” said GW’s Leah Brooks.
And if those pens get more expensive?
“Parents have to reallocate something in their budget, right? They have to give up something else to buy the cheap pens, or they have to buy fewer cheap pens,” she said.
In other words, spend more on less stuff.
