Moody's economist: Trump's tariffs pushed U.S. inflation up to 3%

Tariffs are finally showing up where people actually feel them — in prices, hiring, and the weird aftershocks now rippling through trade. Mark Zandi, Moody’s chief economist, said this week that Trump’s tariffs have done “significant damage” to the U.S. economy, pushing the consumer-expenditure deflator to about 3% from roughly 2.5% year over year and helping freeze job growth outside healthcare. At the same time, the government has started sending tariff refunds to importers after the court fight over those duties, while U.S. exporters are still getting hit by retaliation in places like Canada and Europe. (msn.com) ### Why does Zandi’s 3% number matter? The personal consumption expenditures price index — the PCE deflator — is the inflation gauge the Federal Reserve watches most closely. So moving from about 2.5% to 3% is not a rounding error. It means tariffs are acting like a tax that businesses are struggling to absorb, and at least part of that co(msn.com)his range could add close to a full percentage point to inflation, and now he says the damage is showing up in the real data. (msn.com) ### How do tariffs turn into higher inflation? Basically, importers pay the duty first. Then the bill moves through the system. Retailers raise shelf prices, manufacturers pay more for parts, and distributors charge more to everyone downstream. Not every company can pass through the full hit, but enough of them do that the aggregate price (msn.com)ing, packaging, and replacement inventory. (msn.com) ### Why are refunds showing up now? Because the legal fight flipped. A Supreme Court ruling in February opened the door to refunds on a huge pile of tariffs, and Customs and Border Protection launched an online claims portal in April to process them. Estimates for total redress run above $160 billion and as high as roughly $175 billion, wh(msn.com)den while the case played out. (usatoday.com) ### If refunds are coming, doesn’t that cancel the damage? Not really. Refunds help cash flow, but they arrive after companies already made decisions — cutting orders, delaying hiring, shrinking margins, or raising prices. You do not instantly unwind those choices just because a payment finally lands. And some of the damage sits outside the refund system entirely, because foreign retaliation and broken customer relationships do not get reimbursed. (msn.com) ### Where is retaliation showing up? Canada is the cleanest example. U.S. spirits exports there fell nearly 63% in 2025, dropping to about $89 million from $238 million a year earlier. Big American brands were pulled from shelves, and Canada fell from the No. 2 export market for U.S. spirits to No. 6. That is what retaliation looks like in practice — not a headline, but vanished shelf space and lost market share. (thespiritsbusiness.com) ### What’s happening with Europe? Europe is trying to finalize its side of a trade arrangement with the U.S., but the pressure point is autos. The threat of higher U.S. car tariffs is hanging over the talks, and EU officials are still arguing over safeguards and timing. So even where there is a path to de-escalation, the tariff threat is still shaping investment and negotiation behavior right now. (usnews.com) ### Why does hiring matter here? Because inflation from tariffs would be bad enough on its own. But Zandi’s point is that the economy is taking a second hit — weaker labor demand outside healthcare. That is the ugly version of tariff policy: households pay more, while businesses get more cautious at the same time. (msn.com) ### Bottom line? The big shift is that the tariff story has moved from politics into arithmetic. Prices are higher, refunds are exposing how large the burden was, and retaliation is still cutting into U.S. exports. Even if some duties get unwound, the economy has already eaten a chunk of the cost. (msn.com)