Expectations for widespread price hikes following a wave of new tariffs this year have largely fallen short, surprising economists and fueling claims from tariff defenders that the levies are having no impact on inflation.
The reality is more complicated.
Government data out this week showed prices on frequently imported goods—such as furniture, sports equipment, and appliances—rose in June at the fastest pace in years. But a decline in car prices and certain services categories largely offset those gains, keeping overall inflation in check.
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Other factors have also helped to hold back bigger price increases: Some companies raced to import products ahead of tariffs, which helped delay their impact, and many businesses have been reluctant to fully pass along costs to consumers, instead absorbing them at the expense of profit margins. In addition, some foreign suppliers have lessened tariffs’ impact by cutting prices to keep goods flowing to the United States.
Now, with inventory running out and threats of harsher tariffs from President Donald Trump looming, firms are facing increasing pressure to ratchet up prices further. And forecasters continue to anticipate a tariff-fueled inflation boost in the coming months. “As we move ahead, we’re expecting the inflation impulse from tariffs to continue to build over the summer. Companies are still working through some of that front-loaded inventory,” said Lydia Boussour, a senior economist at EY-Parthenon. “I think they’re going to grow more reluctant to sacrifice their margins.”
Just how far companies can push inflation-weary consumers remains an open question, as is how expansive or persistent tariff-related price increases will ultimately be. The latest retail sales data allayed those concerns with a broad advance in spending.
Some businesses have suggested they will press on with price hikes. Industrial supplier Fastenal Co. said on an earnings call this week that it’s tried to mitigate the higher costs by diversifying its supply chains and building up stockpiles, but it’s already had to raise prices three times in recent months and will likely have to again. “Additional pricing actions will be necessary in the second half of 2025, with the potential to double the impact of pricing, depending upon where the deferred tariffs ultimately settle and the pace and execution of our actions,” interim CFO Sheryl Lisowski said on the call.
Impending New Tariffs Add a Further Wrinkle
In the past week, Trump has renewed his aggressive stance on trade with plans for fresh tariffs on goods from Canada, Mexico, Brazil, and other countries to set in next month. The tariffs announced through last weekend would add about 0.4 percentage point to the price level of the Federal Reserve’s preferred inflation gauge if fully passed through, according to JPMorgan Chase & Co. economists. More likely, they said, is a scenario in which companies absorb some of the costs, lessening the impact.
The on-again, off-again, nature of Trump’s tariffs has presented companies with additional opportunities to stock up on inventory. The Port of Los Angeles, the nation’s busiest trade hub, saw container traffic rebound to a record for June after a slump in May, reflecting how significant levies on China were dialed back soon after they were announced. With all the tariff whiplash, many firms have opted to hold off on price increases so they don’t have to raise prices multiple times and risk antagonizing customers, Stephen Stanley, chief economist at Santander U.S. Capital Markets, said in a note this week.
Retailers including Albertsons Cos. and Kroger Co. said that consumers have been sensitive to price changes, and Dollar General Corp. is anticipating some price increases “as a last resort.” That’s been a key factor in restraining inflation so far, with executives reluctant to test consumers who’ve dealt with a persistently rising cost of living in recent years and slowing wage gains.
Increases in goods prices “will likely weigh on consumer demand in the coming months—and we do expect to see a pullback in goods spending as a result,” Royal Bank of Canada economists Michael Reid and Carrie Freestone wrote in a note Tuesday.
Foreign suppliers have also absorbed some of the tariff impact as companies abroad cut prices to keep goods flowing to the United States. Prices charged by factories fell from China to the Eurozone and remained subdued in much of the world outside the U.S. last month, according to JPMorgan global manufacturing data.
Export prices in Japan have contracted for three straight months, and the country’s carmakers cut prices to the United States in June by a record in data going back to 2016. In China, which has faced years of deflation, overall export prices for several items fell in May from the prior year, including mineral and textile products, data this week showed. “China’s own deflation and price competitiveness have been an important part of the story for U.S. consumer prices,” Bloomberg economists Anna Wong and Chris G. Collins said in a note Tuesday.
It’s unclear how long those elements will continue to restrain U.S. inflation. “Numerous executives have noted that the day of reckoning is finally upon us, and many are planning price adjustments this summer,” Santander’s Stanley wrote. “I continue to anticipate that a tariff-related acceleration in inflation is coming this summer, likely beginning in July.”
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