Core Insights - The report from ICBC Asia Research analyzes the impact of the US "reciprocal tariff" policy on the economy, focusing on inflation, supply chains, economic data, and policy outlook, while outlining economic signals and future trends in the US economy [1][2] Inflation and Price Transmission - As of August, the PPI decreased to 2.6% year-on-year, while the CPI increased to 2.9%, indicating a clearer transmission of inflation effects from tariffs [2][12] - The core goods contributed a 0.4% increase to the CPI, with furniture and transportation products leading the price hikes [2][12] - The inflationary impact is expected to become more pronounced in the fourth quarter as inventory buffers are depleted and companies gradually pass on costs [2][12] Economic Data and Trends - Economic resilience was supported by non-residential investment and consumer behavior, with GDP growth exceeding 1.5% in Q1 and Q2 when excluding tariff disruptions [2][19] - However, there are increasing downward risks as tariff effects become evident, potentially leading to reduced production and consumption [2][19] Policy and Financial Market Outlook - The Federal Reserve is likely to implement interest rate cuts in September, facing challenges from economic downturns, high inflation, and policy pressures [2][6] - The US dollar index is expected to trend downward, while the yield curve for US Treasury bonds will exhibit a "bull steepening" characteristic due to conflicting economic signals [2][6] Supply Chain and Inventory Dynamics - Tariff expectations have heightened inventory motivations across supply chains, leading to a temporary "prosperity illusion" in supply-side data [6][19] - Increased imports and production of durable goods have somewhat mitigated the impact of tariffs on end prices, with durable goods shipments rising by 3.1% in the first seven months of 2025 compared to the same period in 2024 [2][33] Consumer Behavior and Confidence - Consumer confidence has declined, with rising concerns about price increases leading to preemptive stockpiling of goods [2][26] - Retail sales in categories such as motor vehicles and furniture have shown significant growth, reflecting consumer behavior in response to tariff expectations [2][27]

Inflation Data - The US August CPI increased by 2.9% year-on-year, exceeding the previous value of 2.7% and market expectations of 2.84%[2] - The seasonally adjusted CPI rose by 0.4% month-on-month, compared to a previous increase of 0.2% and market expectations of 0.3%[2] - Core CPI increased by 3.1% year-on-year, matching the previous value and exceeding market expectations of 3.05%[2] Economic Indicators - The unemployment rate in the US rose from 4.2% to 4.3%, reaching a nearly four-year high[8] - Initial jobless claims surged to the highest level in nearly four years as of the week ending September 6[8] - The Michigan University one-year inflation expectation increased by 0.3 percentage points to 4.8% in August, while the five-year expectation rose by 0.1 percentage points to 3.5%[3] Market Implications - The rise in inflation has led to increased expectations for interest rate cuts, with the probability of three cuts within the year significantly rising[2] - Despite the overall CPI exceeding expectations, core CPI growth was in line with market predictions, indicating potential inflation persistence[3] - The combination of high inflation, slowing economic growth, and rising unemployment signals a risk of stagflation in the US economy[8]