Prices are now starting to rise because of tariffs. Economists say this is just the beginning

Recent economic data and analysis indicate that the inflationary impact of tariffs, previously muted by staggered implementation, supply chain lags, and inventory stockpiling, is now accelerating. While foreign exporters initially absorbed some costs, private-sector data and May CPI figures show significant price increases in tariff-sensitive categories, with home goods up 4.7% since January. The upcoming June CPI is anticipated to mark a 'turning point' for broader tariff pass-through, with Wells Fargo projecting overall CPI could peak at 2.9% later this year. This signals wider price creep, potential shrinkflation, and a notable impact on consumer purchasing power.

Analysis

The inflationary impact of U.S. tariffs, previously muted by factors such as staggered implementation and inventory front-loading, is now demonstrably accelerating in consumer prices. While headline inflation has been suppressed by disinflation in services and energy, underlying data reveals a significant turning point. A Goldman Sachs analysis indicates that while foreign exporters initially absorbed 20% of tariff costs, the pass-through to U.S. businesses and consumers is intensifying. Evidence for this is mounting: the May CPI showed multi-year high monthly price increases for appliances (+0.8%) and toys (+1.3%). Furthermore, private-sector data from DataWeave confirms a sustained price creep since January, with e-commerce prices for home and furniture rising 4.7% and toys up 3.8% by June. Notably, some large retailers like Walmart and Target have implemented even steeper price hikes on specific goods. Economists from Wells Fargo now anticipate the upcoming June CPI data will mark a 'turning point' where tariff effects become more pronounced in core goods, forecasting a potential peak in overall CPI at 2.9% later this year. This suggests the 'slow burn' of tariff-related inflation is catching, posing a direct threat to consumer purchasing power ahead of the key back-to-school and holiday shopping seasons.

Key Decisions for Investors

• Monitor the upcoming June CPI report closely, as it is expected to be a 'turning point' that could confirm an acceleration in core goods inflation, potentially impacting Federal Reserve policy outlook.
• Investors should scrutinize holdings in consumer discretionary sectors, particularly retailers heavily reliant on imported goods like home furnishings, appliances, and toys, as they face the dual risk of margin compression and softening consumer demand.
• Evaluate companies' ability to manage rising costs, watching for signs of pricing power, shifts to private-label goods, or 'shrinkflation' as indicators of operational resilience in this inflationary environment.