Atlanta Federal Reserve: Companies expect to pass 50% of tariff costs onto consumers

According to the latest survey by the Atlanta Federal Reserve, businesses expect to pass on about 50% of tariff-related costs to American consumers, who are still recovering from the inflationary shocks of the pandemic. Atlanta Fed researchers noted in a blog post on Thursday that this result indicates many businesses anticipate adopting a different strategy than in 2018, when they passed nearly all tariff costs onto customers.

"Our research shows that many businesses believe current consumers are sufficiently sensitive to prices (perhaps because the recent wave of inflation has not yet subsided) that they cannot pass on the entire cost increase without weakening demand," wrote Atlanta Fed researchers Kevin Foster, Aaron Jalca, and Brent Meyer.

The survey, conducted from April 7 to 18, asked businesses to estimate what proportion of tariff costs they could pass on to customers based on current demand levels. The results showed that businesses with stronger demand expected to pass on a higher proportion of costs than those with weak sales. During the survey period, President Donald Trump had imposed a 10% baseline tariff on nearly all countries and a 25% tariff on all foreign-made cars and parts, with China and the European Union facing significantly higher tariff levels at that time.

On average, businesses told Atlanta Fed researchers that they expect to pass on 51.1% of costs without affecting current demand if costs increase by 10%; if costs increase by 25%, businesses said they might pass on 47.3% of the tariffs.

Since Trump announced the tariff policy, business owners have had to cope with multiple policy adjustments: the president delayed tariffs on certain products and temporarily reduced tariffs on several countries during negotiations. Last week, a U.S. court initially blocked and then restored most tariffs during the appeals process, further increasing uncertainty. Due to the unclear final status of tariffs and their impact on prices and economic growth, Federal Reserve officials are currently maintaining stable interest rates while awaiting more data.

Tariffs have not yet clearly manifested in official data on prices or the labor market, inflation has eased, and employment remains stable. However, both consumers and business leaders are concerned about how tariffs will affect their profits. The Federal Reserve's Beige Book survey released on Wednesday indicated that economic activity has declined in recent weeks amid uncertainty. The report found that businesses planning to raise prices due to tariffs expect to implement these increases within three months, with some regions anticipating these price hikes to be "strong, significant, or substantial."