Multiple factors have delayed Trump's tariffs from translating into significant overall inflation.....

 Multiple factors have delayed Trump's tariffs from translating into significant overall inflation, though some consumer prices have already risen. The full inflationary effect is expected to appear later in 2025 and into 2026 as initial buffers diminish. While overall inflation has been slower to accelerate, reports indicate that prices for specific consumer goods have already risen due to the tariffs. For example, the September 2025 CPI report noted that apparel prices saw a 0.7% increase, and durable goods rose by 0.3%. A recent survey also revealed that a significant majority of Americans are reporting an increase in their household costs compared to the previous year. S&P Global analysts have stated that as companies exhaust their options, a growing share of the costs will be passed on to consumers via higher prices.

Reasons for delayed inflationary impact

To avoid losing sales, many U.S. companies have absorbed some or all of the increased costs from tariffs by accepting lower profit margins. However, analysts anticipate that this will be temporary and companies will pass on more costs as margins shrink. Businesses "front-ran" the tariffs, importing large volumes of goods before the duties took effect, pushing imports to near-record levels. As companies deplete this pre-tariff inventory, higher-priced, tariffed goods will eventually replace them on store shelves. U.S. importers have been able to mitigate costs by shifting their sourcing to lower-tariff countries. This "substitution effect" has kept the realized tariff rate lower than the announced rate. Ongoing trade negotiations have led to delays and a complex patchwork of varying tariff rates, which has created uncertainty. Temporary pauses, like the one with China, and exemptions for certain sectors, such as semiconductors and pharmaceuticals, have reduced the overall economic shock. Inflation metrics measure the entire economy, and tariffed goods are only a portion of this. Disinflationary trends in other parts of the economy, such as slowing wage growth and lower housing costs, have partially offset the price increases caused by tariffs. The Federal Reserve has also been weighing these conflicting pressures when setting interest rates. Tariffs were rolled out unevenly throughout 2025, and it takes several months for cost increases to fully filter from raw materials to final consumer goods. Economists predicted the main impact would be felt in the second half of 2025, a forecast supported by recent data showing a gradual uptick in inflation.

Short-term tariff absorption tactics

In the initial phase, businesses take several steps to avoid raising consumer prices. Companies attempt to negotiate lower prices with foreign suppliers to offset the tariff increase. In a 2025 study on steel imports, foreign exporters absorbed almost half of the tariff burden by gradually lowering their prices. Businesses may draw from existing stockpiles of untariffed goods to delay or moderate price increases. This approach is temporary, as inventory eventually needs to be replaced at higher costs. To manage public perception and minimize customer loss, some companies selectively absorb costs on their most price-sensitive products while holding off on raising prices. They may instead increase prices on premium goods with less elastic demand. Firms may look for cost-saving measures within their supply chain and other operations to mitigate the impact of tariffs.

Long-term tariff pass-through

S&P Global analysts have indicated that a growing share of the costs will be passed on to consumers as companies exhaust their options. While some price increases may appear immediately, larger and more widespread increases are expected later, especially as companies face higher costs when they restock. If an entire industry is affected by tariffs, the overall increase in import costs can push prices up across the board. This can limit the competitive risk of being the first to raise prices. In business-to-business transactions, companies may use a transparent tariff surcharge mechanism to show that a specific fee is due to the tariff and can be removed later. This approach is less common in consumer-facing retail.

Consequences for consumers

When companies run out of options to absorb tariff costs, consumers face several consequences. As seen in the September 2025 CPI report, prices for goods like apparel and durables have already increased. S&P Global analysts anticipate that this trend will continue and become more widespread. Increased costs for consumers can slow down economic growth by reducing purchasing power. This can affect household budgets, particularly those with lower incomes who spend a higher percentage of their earnings on necessities. Domestic production might increase, but consumers could face fewer imported product choices. A 2025 study suggested that in some cases, trade liberalization decreased product variety.

When tariffs or other trade barriers make imported goods more expensive, domestic manufacturers can raise their prices as well, because they face less competition from cheaper foreign goods, which can lead to higher prices for consumers even when buying domestically produced items, essentially allowing them to "price-gouge" due to reduced competition. When imported goods become more expensive due to tariffs, consumers are more likely to opt for domestically produced alternatives. This gives domestic manufacturers less pressure to keep their prices low to compete with cheaper imports, allowing them to increase prices without significantly losing customers. Domestic manufacturers may also take advantage of the higher prices of imported goods by raising their own prices slightly, even if their production costs haven't changed substantially. This is known as the "price umbrella effect" where the higher price of imported goods sets a ceiling for domestic prices. Consumers ultimately bear the burden of higher prices. They have less choice and may need to pay more for similar goods, regardless of whether they are buying domestically or imported products. Increased prices due to tariffs can contribute to overall inflation in the economy. Higher prices for both imported and domestic goods can decrease consumer purchasing power. If other countries retaliate with tariffs on domestic exports, it can further harm the economy. Based on the information provided, companies are absorbing the initial cost of tariffs through strategies like altering supply chains, negotiating with suppliers, and using existing inventory. However, analysts have noted that as these options are exhausted, a larger share of the costs will be passed on to consumers.