Tariffs are starting to bite consumers and businesses, economists say

Recent analyses indicate that Trump administration tariffs are significantly contributing to inflation, with the St. Louis Fed reporting a 0.5 percentage point increase in headline PCE and 0.4 percentage points in core PCE between June and August due to these levies. Economists found that companies have passed on 35% of tariff costs to consumers, with projections suggesting this could rise to 55%, while S&P Global estimates consumers have already absorbed $592 billion of the $1.2 trillion in additional costs borne by U.S. businesses. This pass-through is expected to continue, as many businesses are still adjusting pricing strategies amidst policy uncertainty, leading to measurable upward pressure on consumer prices and a reduction in corporate earnings by $315 billion.

Analysis

Trump administration tariffs are exerting measurable upward pressure on consumer prices, with the St. Louis Federal Reserve reporting a 0.5 percentage point addition to headline Personal Consumption Expenditures (PCE) and 0.4 percentage points to core PCE between June and August. This contributed to the Consumer Price Index (CPI) reaching 2.9% year-over-year in August, remaining above the Federal Reserve's 2% annual target.

A significant portion of these tariff costs is being passed on to consumers. The St. Louis Fed found companies passed 35% of tariff costs from May through July, while Goldman Sachs projects this could eventually reach 55%. S&P Global analysis indicates businesses have already passed approximately $592 billion of the $1.2 trillion in additional tariff costs to consumers, concurrently reducing corporate earnings by $315 billion.

The full impact of these tariffs on consumer prices is still unfolding, as businesses are in the early stages of adjusting pricing strategies and awaiting tariff rate stabilization. This suggests that the dynamics of prices will continue to evolve, implying sustained upward pressure on consumer prices over the coming months as more costs are absorbed and passed through.

Key Decisions for Investors

• Investors should closely monitor inflation metrics such as PCE and CPI for sustained upward trends, as tariff pass-through is expected to continue impacting consumer prices.
• Assess corporate earnings reports for ongoing margin compression, particularly in import-reliant sectors, given the $315 billion reduction already observed.
• Evaluate potential shifts in consumer spending patterns and demand elasticity as rising prices reduce purchasing power.