Merchandise Inflation Increases as Companies Feel Tariff Pain

American consumers likely saw somewhat faster inflation last month, especially for merchandise.

That’s according to a report Sunday (June 8) by Bloomberg News, citing a survey of economists. That survey projected a 0.3% uptick in the price of goods and services —  excluding volatile food and energy costs — in May, the biggest increase in four months.

According to the report, this measure is seen as a better indicator of underlying inflation, and is forecast to accelerate for the first time this year — to 2.9% — on an annual basis.

This week’s release of new Consumer Price Index (CPI) and producer price data, the report added, will give officials with the Federal Reserve officials a last look at inflation and the effect of higher tariffs before their June 17-18 policy meeting.

“We expect a soft print for May’s CPI, with deflation in discretionary services more than offsetting firmer goods inflation,” the economists said.

“As the recent beige book flagged, some firms are passing through tariffs costs. We see partial pass-through in categories like furniture, apparel and auto parts. But airfares are falling sharply, and hotels and recreational services are downshifting too.”

In related news, U.S. business executives don’t feel they can pass the entire cost of tariffs on to their customers the way they did in 2018, according to recent research by the Federal Reserve Bank of Atlanta.

Although companies passed along almost the full cost of tariffs to their customers during the first Trump administration, businesses surveyed in April said they anticipate being able to pass through only around half of the cost, the researchers wrote in a blog post last week.

“Compared to the 2018 episode, where research suggests nearly full pass-through of costs into prices, our results suggest many firms believe their customers are price-sensitive enough this time around (perhaps owing to the recent inflationary surge that isn’t too far in the rearview mirror) that they cannot pass through the entire cost increase without reducing demand,” the researchers wrote.

Also last week, the Federal Reserve Bank of New York reported that three-quarters of companies in the manufacturing and service industries have passed along their higher input costs to end customers.

Meanwhile, research from the PYMNTS Intelligence report “Tariffs and Business Uncertainty: The Current State of Play” found that 42% of goods firms and 21% of services companies said they intended to increase prices in response to tariffs.