Inflation could be a third lower without tariffs, financial decision makers say

A recent CFO survey indicates tariffs are responsible for roughly one-third of current price inflation and are expected to exert sustained upward pressure on costs into 2026/2027, contradicting official claims. This persistent impact is leading businesses to pass higher costs to consumers and remains the top concern for CFOs, who report a more pessimistic economic outlook for their firms. Fed Chair Powell has acknowledged the pass-through of tariffs into rising import prices, challenging arguments that foreign exporters absorb these costs. Consequently, this dynamic suggests tariffs are a significant and ongoing contributor to domestic inflation, impacting corporate strategy and consumer spending.

Analysis

A survey of Chief Financial Officers from Duke University and the Federal Reserve Banks of Richmond and Atlanta indicates that tariffs are a primary driver of inflation, accounting for approximately one-third of corporate price growth this year. This suggests that without this policy's impact, the recent 2.9% inflation reading would be near the Federal Reserve's 2% target. The survey data refutes the notion of a one-time price adjustment, with CFOs anticipating tariffs will contribute to a quarter of price increases next year and persist as a factor into 2026. This sustained cost pressure is being passed to consumers, as evidenced by planned price hikes at major firms including Walmart, Nike, and Procter & Gamble, and is supported by data showing import prices unexpectedly rose 0.3% in August. While new Fed Governor Stephen Miran has downplayed these concerns, Fed Chair Jerome Powell's statements align with the survey, noting that exporters are not absorbing the costs and that rising goods prices are reversing a 25-year trend. Consequently, tariffs remain the top concern for CFOs for the third consecutive quarter, depressing their economic outlook and diverting corporate resources from productive investment to manage trade-related complexities.

Key Decisions for Investors

• Investors should re-evaluate margin forecasts for import-heavy consumer sectors, as companies from Target to Stanley Black & Decker are passing on costs, which could either compress margins or dampen consumer demand.
• Factor in a higher baseline for inflation in portfolio modeling, as persistent tariff effects could keep inflation elevated and limit the Federal Reserve's capacity to pursue a more accommodative monetary policy.
• Screen for companies with greater supply chain resilience or a predominantly domestic operational footprint, as they may be better insulated from the multi-year cost pressures and administrative burdens associated with ongoing trade disputes.