Tariffs Drive Up Consumer Prices Despite Moderating Inflation

Tariffs are ramping up prices for U.S. consumer goods despite moderating inflation.

As the Financial Times (FT) reported Sunday (Oct. 5), government data and company statements are indicating price increases on a range of products after companies sold off inventories and began transferring the cost of tariffs to shoppers.

For example, Bureau of Labor Statistics data showed that in the six months to August, prices for audio equipment climbed 14%, while dresses rose 8% and tools, hardware and supplies had gone up by 5%. Most of these goods, the FT said, are imported.

“Over the past two years, goods inflation has been about zero. We are beginning to see goods inflation creep up,” said Mark Mathews, chief economist at the National Retail Federation.

So far, the report added, the White House’s tariff policy hasn’t been as damaging as many economists worried, with the U.S. headline inflation rate coming to 2.9% in August.

Some retailers scrambled to import goods ahead of tariff deadlines, while others are shoring up margins by increasing prices on particular items.

The report also cited the example of Costco, which has been able to limit its tariff exposure by displaying fewer imported winter holiday items like toys and decorations, while filling empty floor space with high-value saunas and backyard sheds, CEO Ron Vachris said on a recent earnings call.

However, the FT added, many businesses are becoming more explicit about price increases as they offset the rising costs of imported goods, which account for a little more than 10% of U.S. consumer spending.

Research by PYMNTS Intelligence has found that 90% of goods firms have already raised prices in the past 12 months in response to macroeconomic volatility. However 60% of firms overall — and three-quarters of goods-focused firms — say they saw a drop in profit margins even after those increases, with most saying this erosion was moderate.

Retailers find themselves in a bind, PYMNTS wrote last week, with 70% raising prices due to macro conditions, although many saw their profits shrink nonetheless.

“Tariffs and other upstream supply chain pressures have compounded the issue, forcing merchants to pass on costs while still absorbing part of the burden themselves,” the report said.

Recent estimates from JPMorgan show the average effective tariff rate in the U.S. at nearly 16%, compared 2.3% at the end of last year.

“As sectoral tariffs continue to be imposed, the bank projected that the effective U.S. tariff rate will approach 18% to 20% by the end of the year,” PYMNTS wrote last week.