Firms to Pass Tariff Prices onto Consumers as Options Dwindle

Eric Winograd, Chief Economist at AllianceBernstein, discusses the possibility of slower US and global growth, and how much of Trump's proposed tariff rates might be passed down to consumers.

Economists have long been warning of a tariff-driven boost to US inflation. The next report on consumer prices will put their conviction to the test.

After four months of overestimating readings on the consumer price index, forecasters are predicting an acceleration in June data due from the Bureau of Labor Statistics on Tuesday. Advances in tariff-exposed categories including furniture, toys and recreational goods, as well as cars, are seen putting an end to the streak of benign figures.

It’s a tough position to be in for the Federal Reserve, which has defended holding interest rates steady this year in anticipation of tariff-driven inflation that hasn’t shown up yet. Another tame number would all but certainly draw more ire from President Donald Trump — who’s repeatedly called for the central bank to lower rates and criticized Chair Jerome Powell personally.

There’s widespread consensus among Fed officials and private-sector forecasters that inflation will turn higher over the summer as businesses start passing on Trump’s tariffs to consumers. While many firms chose to initially shield customers by stocking up on inventories in advance or even absorbing part of the higher costs at the expense of lower margins, some are now running out of options.

“You’re still in an environment where businesses used a broad array of strategies to mitigate the effect of duties,” said EY-Parthenon Chief Economist Gregory Daco, who expects tariffs will drive a third of the overall monthly advance, with a bigger hit to come later in the summer. “But over time that effect is going to increase.”

That threat was amplified last week as Trump ramped up his tough talk on trade, unveiling higher tariffs on copper as well as goods from Canada, Brazil and other countries. Some of the more punitive levies are now expected to take effect in August after being pushed back from July, and Trump said he won’t extend the deadline.

“Certainly now that the president seems to be throwing a volley of new higher tariff rates at a number of countries, we’re certainly not out of the woods yet on a tariff inflation threat,” said Scott Anderson, chief US economist at BMO Capital Markets.

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