Notes on the Week Ahead The Inflation Outlook
Aug 11, 2025
Get ready for a possible rise in inflation! Tariffs may send prices up, but low energy costs and declining shelter inflation could temper the heat. The dollar's weakness and labor shortages add to the inflation puzzle, while fiscal stimulus looms ahead of the mid-terms. Plus, the discussion dives into how interest rates and CPI trends might shape the economy. Investors are urged to diversify as these factors may impact asset prices.
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Inflation Temperature Rising
- David Kelly warns tariffs will raise inflation slightly in the near term.
- He expects this inflation to linger well above the Fed's 2% target.
Tariff Rates And Trade Shifts
- David Kelly says the average static tariff rate is estimated at 17.4% today.
- He notes importers shifted purchases away from China toward Mexico to reduce tariff impacts.
Tariff Pass-Through Assumption
- David Kelly assumes 50% of tariff costs will be passed to consumers over six months.
- He projects tariffs add about 1.0 percentage point to year-over consumption inflation in Q4.