Since the middle of 2024, U.S. economic data pointed to a slowdown in inflation rates.
Markets and the Federal Reserve grew increasingly confident that inflation would fall. At the time, stock markets expected the Democrats to win the election.
Trump’s tariff plans have substantial implications for inflation rates and consequently, consumers. When the U.S. implements them, the trade partners would retaliate. In effect, all parties face higher costs. Suppliers will pass most, if not all, of the tariffs to customers.
The tariff threats also have an impact on immigration. Besides cracking down on illegal immigrants, new policies would cut back on immigration levels. This distorts the employment market. Corporations will have fewer talented people to choose from. As labor shortages rise, costs will also rise.
Investors are expecting costs to rise for firms that ship products from Mexico to the U.S. Automakers like GM (GM), Ford Motor (F), and Stellantis (STLA) manufacture their vehicles in Mexico.
Food suppliers like Unilever (UL), Pepsico (PEP), and Proctor & Gamble (PG) are also underperforming. In the last few months, Pepsi and Coke (KO) shares traded lower.
Your Takeaway
Inflationary risks are high in 2025. Watch out for high tariffs to increase costs for suppliers. They will pass those costs to consumers.
