There's 'overwhelming evidence' tariffs have raised consumer prices, says Bank of America

Bank of America analysts, led by Aditya Bhave, assert that tariffs have unequivocally pushed consumer prices higher, with consumers bearing 50-70% of the levy costs to date. Their research estimates tariffs contribute 30-50 basis points to the core Personal Consumption Expenditure (PCE) inflation rate, indicating continued upward pressure on inflation, particularly as effective tariff rates are expected to climb further.

Analysis

Bank of America analysts, led by Aditya Bhave, assert that tariffs have unequivocally driven consumer price increases, with consumers absorbing an estimated 50% to 70% of the total levy costs to date. This direct pass-through mechanism contradicts initial arguments that tariffs would primarily benefit domestic manufacturing without significant consumer burden.

The research quantifies this impact, estimating tariffs contribute 30 to 50 basis points to the core Personal Consumption Expenditure (PCE) inflation rate. This significant contribution suggests tariffs are a material factor in the current inflationary environment, which saw the PCE price index rise 2.7% year-on-year in August.

Analysts project continued upward pressure on inflation, particularly as effective tariff rates are anticipated to climb further. This outlook is reinforced by S&P Global research indicating tariffs will cost businesses $1.2 trillion this year, ultimately borne by shoppers, highlighting a substantial economic drag.

Key Decisions for Investors

• Investors should review portfolio allocations for exposure to inflation-hedging assets or companies with strong pricing power, given the persistent tariff-induced inflationary pressure.
• Assess consumer-facing companies and supply-chain-reliant sectors for vulnerability to tariff-related cost increases and potential demand elasticity impacts, considering the projected $1.2 trillion cost to businesses.
• Monitor upcoming economic data, specifically core PCE and retail sales figures, for further evidence of tariff-induced inflation and its effect on consumer spending patterns.