Although the inflation effect of tariffs is delayed, American consumers are beginning to feel the initial sting

The expectations of widespread price increases triggered by a new round of tariffs have largely fallen flat, surprising economists. However, behind this complex reality is the accumulating momentum of tariffs' transmission to inflation.

This week, the latest government data from the United States revealed preliminary signs of the impact of tariffs. In June of this year, the prices of frequently imported goods such as furniture, sporting goods, and home appliances are rising at the fastest pace in years. This indicates that the cost transmission of tariffs is no longer mere talk and is having a substantial impact on specific product areas.

However, the impact of the aforementioned price increases has largely been offset by declines in automobile prices and certain service categories, thereby suppressing overall inflation data. This situation provides arguments for tariff defenders, who claim that the imposition of tariffs has not affected inflation, but this appearance conceals the immense pressure that businesses and supply chains are under.

As companies' buffering capacity weakens and Trump threatens to impose harsher tariffs, economists generally predict that the inflationary impulse driven by tariffs will continue to strengthen in the coming months. Businesses are facing increasing pressure to raise prices, and the comprehensive impact of tariffs on prices may just be a matter of time.

The Buffer is Disappearing

So far, various factors have collectively delayed the full impact of tariffs on consumer prices.

One key factor is that many companies have chosen to sacrifice profit margins to absorb increased costs rather than fully pass them on to consumers. Additionally, some businesses imported large quantities of goods in advance of the tariffs taking effect, building inventory buffers that delayed the manifestation of price increases.

Data from the Port of Los Angeles, the busiest trade hub in the United States, corroborates this.

After a decline in May, its container throughput rebounded to record levels in June, as businesses rushed to stock up during the window period. Economist Stephen Stanley noted in a report that the "whimsical" tariff policy of the Trump administration has also led many companies to choose to delay price increases to avoid frequently adjusting prices and angering customers.

But this buffer is failing.

Industrial supplier Fastenal stated in its earnings call this week that although the company has attempted to alleviate cost pressures through supply chain diversification and inventory building, it has had to raise prices three times in recent months and may need to do so again in the future. Its interim CFO Sheryl Lisowski said:

Additional pricing actions will be necessary in the second half of 2025.

Despite the increasing pressure on businesses to raise prices, the extent to which they can ultimately push prices higher remains an open question, with the key constraint being consumers. In recent years, American consumers have been plagued by rising living costs and slowing wage growth, making them extremely sensitive to price changes.

Overseas Suppliers Lower Prices to Share the Pressure

Another reason the impact of tariffs has been partially offset comes from overseas.

To maintain exports to the U.S., foreign suppliers have chosen to lower factory prices, thereby sharing some of the tariff costs. According to global manufacturing data from JP Morgan, prices in most parts of the world outside the U.S. remain subdued, with factory prices showing declines last month. **

Specifically, Japan's export prices have contracted for three consecutive months, with automobile manufacturers recording the largest price drop for exports to the U.S. in June since data has been available in 2016. In China, data released this week shows that the overall export prices of several goods, including mineral products and textiles, fell year-on-year in May.

Bloomberg economists Anna Wong and Chris G. Collins stated in a report:

China's own price competitiveness has always been an important part of the story affecting U.S. consumer prices.

However, it remains uncertain to what extent these external factors can continue to suppress U.S. inflation.

Inflation Wave May Arrive This Summer

Economists warn that the current calm is only temporary.

As the inventory built up by companies during pre-stocking gradually depletes, they will become increasingly unwilling to continue sacrificing profits. Economist Lydia Boussour stated:

Over time, we expect the inflationary impulse from tariffs to continue to strengthen throughout the summer.

A new round of tariff threats is exacerbating this expectation. According to economists at JP Morgan, if tariffs are fully passed on, the tariffs announced as of last weekend will raise the price level of the inflation indicator preferred by the Federal Reserve by about 0.4 percentage points.

Stanley predicts that this round of tariff-induced inflation acceleration may arrive this summer, potentially starting as early as July. He wrote:

Many corporate executives have pointed out that the day of reckoning has finally arrived, and many are planning to adjust prices this summer.

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