Tariff "bomb" ignites price increase expectations Federal Reserve survey "solid evidence" of inflation concerns

According to the Zhitong Finance APP, the latest University of Michigan consumer confidence survey shows that due to President Trump's tumultuous tariff policies, public inflation expectations for the coming year have reached their highest level since 1981. A new analysis from the Federal Reserve Bank of Boston also indicates that Americans are correct in believing that tariff costs will be reflected in consumer bills.

Researchers at the Boston Fed conducted an analysis based on a survey by Morning Consult at the end of last December, which involved over 400 small and medium-sized enterprises. The survey aimed to explore businesses' expectations and response plans regarding tariffs. Respondents expect that the high tariffs imposed on most U.S. trading partners will increase costs and plan to pass these costs onto consumers through price increases.

The analysis summary points out that "businesses plan to pass on the expected changes in unit costs caused by tariffs to customers through price increases; the extent of this cost pass-through will vary depending on the tariff scenario."

Businesses indicated that the magnitude of price increases depends on the specific tariff scenario. Interestingly, compared to high tariffs (25% rate) and uncertain scenarios (10% rate but fluctuating), they expect the most significant price increases in low tariff (10% rate) scenarios.

Tariffs are taxes paid by importing companies when goods clear customs, and exporting companies or countries do not bear these costs. Businesses can offset additional costs in several ways, such as absorbing them or negotiating with suppliers, but the most common strategy is still to pass the costs onto consumers.

The University of Michigan survey shows that consumers expect the inflation rate to rise to 6.7% in the coming year, up from 4.9% last month. Long-term inflation expectations for the next five to ten years also increased from 4.1% in March to 4.4% in April. A new survey by the New York Federal Reserve also reached similar conclusions, although the expected increase was relatively small.

After President Trump abandoned the high tariffs on "Liberation Day" and announced exemptions for certain technology products, Capital Economics recently estimated that the overall effective tariff rate on U.S. imports has dropped from 27% last week to about 22%.

Although the White House has recently softened its stance on tariffs, Trump's trade agenda has pushed U.S. import tariff rates to their highest level in over a century, which has not only raised inflation expectations but also lowered U.S. economic growth expectations.

The Boston Fed noted that importers expect the cost increases caused by tariffs to take about two years to fully reflect in prices. One unclear factor is how U.S. import tariffs will affect domestic companies' pricing, which has a more profound impact on inflation prospects.

Economists warn that consumers should prepare for inflation to accelerate again. Former Federal Reserve economist Claudia Sahm stated in an interview, "In the short term, if the supply of goods decreases significantly, consumer prices will rise. Soon, T-shirts may soar in price like eggs."

Last week, Federal Reserve officials Susan Collins and John Williams revealed to Yahoo Finance that they expect this year's inflation rate to rise above 3% due to Trump's tariff policies. Federal Reserve Chairman Jerome Powell also stated that tariffs have created "a highly challenging situation" for the central bank Companies are also starting to implement price increase strategies, or inform customers in advance that prices will soon rise, while working to mitigate price shocks through inventory management and collaboration with suppliers.

For example, German automaker Volkswagen recently added an "import fee" to all models affected by the 25% automobile tariff.

Best Buy (BBY.US) CEO Corie Barry stated during the earnings call in March: "We expect that suppliers across all categories will pass some of the tariff costs onto retailers, and it has almost become a foregone conclusion that American consumers will face price increases."