‘Sneakflation’: How Trump’s tariffs are gradually raising costs for American consumers

Contrary to administration claims, economic data and expert analysis indicate that U.S. consumers and businesses are largely bearing the cost of implemented tariffs. Evidence, including steady import prices and projections from Goldman Sachs suggesting 70-100% consumer passthrough, refutes the notion that foreign entities are absorbing these costs. While initial passthrough has been gradual due to factors like stockpiling, the burden is expected to intensify, potentially fueling 'sneakflation' and disproportionately impacting lower-income households.

Analysis

Contrary to administration claims that foreign entities are absorbing tariff costs, a consensus of economic data and expert analysis indicates the burden is falling predominantly on U.S. businesses and consumers. Evidence from Pantheon Macroeconomics shows that U.S. import prices, excluding tariffs, have remained steady rather than declining, refuting the idea that foreign exporters are cutting pre-tariff prices. This is corroborated by Fitch Ratings, which notes that with import prices largely flat, U.S. importers are paying the tariff and will likely pass the majority of the cost on. Projections from Goldman Sachs are stark, estimating that the consumer share of the tariff burden will rise from 22% in June to 67% by October, with an eventual full passthrough of 70-100% when accounting for indirect effects. The inflationary impact is already materializing, with Harvard Business School research showing imported goods are 5% more expensive than pre-tariff trends. Furthermore, an Atlanta Fed survey reveals that businesses, both with and without foreign exposure, have increased their price hike expectations from 2.5% to 3.5%, signaling broader inflationary risk. This is exemplified at the corporate level by Walmart's CEO, who confirmed that tariff-related costs are rising weekly, foreshadowing a gradual but persistent passthrough to consumers, a phenomenon termed 'sneakflation' that will disproportionately impact lower-income households.

Key Decisions for Investors

• Investors should scrutinize portfolios for exposure to consumer discretionary and retail sectors, as companies like Walmart face a direct trade-off between margin compression and passing costs to a price-sensitive consumer base.
• The rising expectation of price hikes across businesses, as reported by the Atlanta Fed, points to a tangible risk of persistent inflation, warranting a review of fixed-income allocations to mitigate potential interest rate risk.
• Consider overweighting companies with demonstrable pricing power and diversified supply chains, as they are better positioned to navigate the rising cost environment without significant demand destruction.
• Monitor corporate earnings calls and monthly inflation data for signs of an acceleration in cost passthrough, as the current gradual 'sneakflation' could reach a tipping point that negatively impacts broader consumer sentiment and spending.