Tariffs are starting to bite consumers and businesses, economists say
Trump Administration Tariffs Impacting Inflation Rates
A recent analysis conducted by economists at the Federal Reserve Bank of St. Louis has revealed that the tariffs imposed by the Trump administration on numerous nations and industries are contributing to inflation, particularly for goods that are heavily imported into the United States.
According to the study, product categories experiencing significant price increases due to tariffs include furniture, car parts, electronics, and musical instruments. Importers, who bear the brunt of these tariffs, are passing on a portion of the additional costs to consumers, as indicated by economic research.
Researchers at the St. Louis Fed found that during the period from May through July, companies passed on 35% of tariff costs to consumers. Goldman Sachs economists suggest that this percentage could potentially rise to 55%, with businesses absorbing 22% of the extra costs and foreign exporters bearing 18% of the expenses.
Predictions for Rising Inflation
Economist Max Dvorkin, one of the authors of the St. Louis Fed study, anticipates that businesses will continue adjusting pricing strategies based on the impact of tariffs on their costs. Even without further changes to tariffs, pricing dynamics are expected to evolve and affect consumers in the coming months.
During the period from June to August, tariffs implemented by President Trump contributed 0.5 percentage points to the headline Personal Consumption Expenditures (PCE) rate, which averaged 2.85%. The levies also added 0.4 percentage points to core PCE, which excludes volatile energy and food prices and averaged around 2.9%. This indicates a significant impact of tariffs on recent inflation trends.
As of August, the Consumer Price Index showed a 2.9% increase from the previous year, surpassing the Federal Reserve’s 2% annual target. Despite earlier predictions of sharper price increases due to tariffs, many businesses are still waiting to see how tariff rates stabilize before adjusting prices.
Analysis of Tariff Costs and Consumer Impact
Analysts from the Wells Fargo Investment Institute suggest that the pass-through of tariff increases from U.S. businesses to consumers is still in the early stages, delayed by uncertainties surrounding tariff announcements and implementation.
While the White House has not provided a response to inquiries regarding the impact of tariffs on consumer prices, President Trump has defended the administration’s trade policy, emphasizing its long-term benefits for the manufacturing sector and job growth.
According to S&P Global analysts, Trump’s tariffs are expected to cost U.S. businesses an additional $1.2 trillion this year, with consumers bearing the majority of these costs. Approximately two-thirds of these tariff expenses, totaling $592 billion, have been passed on to consumers through higher prices, leading to a reduction in corporate earnings by $315 billion.
