Rising Tariffs Begin to Impact Consumer Prices as Economic Effects Unfold

Rising Tariffs Begin to Impact Consumer Prices as Economic Effects Unfold

Economic analysts have been trying to describe how the recent imposition of tariffs has begun to affect consumers’ prices in a meaningful way. This effect is reverberating throughout our entire industry’s sectors. The staggered implementation of these tariffs just started in March of 2024. Today, they are wreaking havoc on household costs—with the most notable impact on home furnishings, tools, and sporting goods. In February, these tariffs on China and on goods not originating in the USMCA region were implemented. Next, in March, came enforcement of tariffs on steel and aluminum. Yet most tariffs were not even announced or applied until April or later.

As companies braced for potential chaos, most took the smart step of frontloading their import orders. They loaded up on finished goods to get ahead of the planned tariffs. One reason has been a lag in the observable impact of these tariffs on consumer prices. Industry professionals have begun to sound an alarm on the tariffs’ effects on escalating costs. It will take time for these changes to work their way through supply chains and get out to consumers.

Recent inflation data CPI from May showed that many categories are particularly sensitive to tariffs, as the data showed rising prices. The data represents a post-COVID trend where prices had previously plummeted but are now exhibiting acceleration. Household furnishings are among the categories that have experienced extreme inflation. Toy prices increased for the second month in a row, up 1.3%, setting a four-year record.

As of June 2024, the Consumer Price Index reflects a 1.9% increase in all housing and furnishing prices since January. At the same time, toy prices were up only 0.4%. Apparel and footwear prices were up a whopping 0.7% over the same period. In both April and May, the cost of appliances spiked by 0.8%. That was the largest monthly jump in almost four years.

As we’ve heard from economists like Dr. Karthik Bettadapura, another Goldman Sachs analyst, noted, tariffs may not have hit official consumer prices in earnest just yet. He thinks the long impact will take shape after some time. He stated, “It’s not surprising that tariff effects have not shown up strongly in official consumer prices yet.”

Tyler Schipper expressed a more optimistic view, suggesting that he is currently “less concerned about inflation building on itself.” He acknowledged that as consumers begin to feel the impact of rising prices, “some of this might become more real for people.”

As Nicole Cervi recently observed, for now, this gives firms fairly consistent pricing power across the board. Nevertheless, she pointed out that it is beginning to lose strength with consumer spending beginning to soften. She stated, “The core goods side will start to leg up higher because of this tariff pass-through starting to take effect.” This means that American consumers will start to see more significant price increases as tariffs continue to slowly impact market forces.

We know that the new economic climate, with high inflation and rising interest rates, has made things difficult for consumers and businesses. And just like that, tariffs continue to be adopted which disrupt supply chains in all industries. It’s time consumers prepared for continued price recalibration on inflationary PQ goods.

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