Walmart Price Hikes Signal Inflation Risks Despite Softer US Data, Capping Dollar Gains

May 16, 2025 - Written by Ben Hughes

STORY LINK Walmart Price Hikes Signal Inflation Risks Despite Softer US Data, Capping Dollar Gains

• US inflation softer than forecast
• Walmart warns of price hikes
• Fed cautious on rate cuts
• Markets doubt early easing
• Dollar struggles on dovish data

Inflation data has been surprisingly soft in the US. Thursday’s PPI reading came in at –0.5% when a 0.2% increase was expected.

Tariff price pressures have not shown up, yet. However, Walmart’s warnings over price increases suggests inflation could still rise in the coming months.

The Fed is still treading carefully and will not commit to rate cuts.

Data in the US has surprised on several levels over the last few weeks. Not only has the economy shown unexpected resilience in the face of tariffs, but inflation has also fallen when most analyst forecast rises. This was again evident in the CPI and PPI data for April, which was particularly surprising as the trade war with China escalated at the start of April and reciprocal tariffs were paused at a relatively high 10%. Despite the pause and a handful of tared deals, imports into the US have got more expensive.

Thursday’s release of the Producer Price Index (PPI) showed a 0.5% fall in April, marking the largest monthly decline since April 2020. This was an unusually large drop, and economists had forecasted a 0.2% increase. The year-over-year PPI rose 2.4%, down from 2.7% in March. Core PPI, excluding food, energy, and trade services, declined 0.4% month-over-month, the most significant drop since 2015, and increased 3.1% annually. The decrease was primarily driven by a 0.7% fall in final demand services, particularly a 1.6% drop in trade services margins, while final demand goods prices remained unchanged.

The lower PPI came two days after a lower-than-expected CPI which brought the 12-month inflation rate to 2.3%, the lowest since February 2021. It has raised questions on whether the inflationary effects of tariffs may have been overestimated. Another theory is that the effects will be delayed as US firms frontloaded inventories ahead of the tariffs and then ran them down. They were also prepared to absorb some of the extra costs rather than passing them on to consumers. That may change going forward.


One warning of inflation in the future comes from the news that Walmart plans to increase prices due to higher costs from U.S. tariffs. Walmart’s CEO, Doug McMillon, stated that the tariffs, even at reduced levels (e.g., Chinese import tariffs lowered from 145% to 30% for 90 days), were too high for the company to fully absorb given narrow retail margins. The price hikes are expected to begin by late May 2025 and intensify in June, affecting items like bananas, avocados, coffee, roses, electronics, toys, and car seats. Walmart is attempting to mitigate these increases by absorbing some costs, and shifting production to non-tariffed countries, but this will take time and is a disruption many firms will try and avoid.

Fed Chair Powell made comments on Thursday and he stayed by the same “wait and see” stance from last week’s meeting. The Fed are in a tough spot as the falling inflation data is putting pressure on them to cut, but they are very uncertain whether the trend will continue. As ING note:

“This week’s data flow has been quite dovish for the Federal Reserve...The USD OIS 2Y swap rate has adjusted 10bp lower from the 3.8% peak, but does not seem to be taking the dovish signals from data at face value given the tariff distortion, and pricing for a Fed cut before September remains below 50%. The dollar short-term rates relationship has loosened in the past two months, but the market’s bearish USD tendency means further dovish repricing could prove to be the catalyst for fresh dollar short building.”

In other words, the data has been dovish, but markets are reluctant to price in cuts as inflation fears remain. The dollar is trading at higher lows but reversed from resistance on Monday and has not been able to build a solid recovery.

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TAGS: American Dollar Forecasts