Tariffs and Consumer Prices: A Closer Look
Inflation in the US remains stable, with a modest increase in prices due to tariffs being balanced out by reduced costs for gas and food items.
Procter & Gamble, a consumer products giant, has announced a mid-single-digit percentage price increase for about a quarter of its products in August. This decision comes as many companies across various sectors are grappling with the impact of US tariffs on consumer prices.
The Impact on Key Sectors
Shoes
The 2025 tariffs have led to significant increases in shoe prices. Consumers are currently facing costs that are 39% higher in the short run, with prices remaining 19% higher compared to pre-tariff levels. This substantial increase is due to the high tariffs imposed on imported shoes, particularly from countries like China and Vietnam.
Furniture
While specific data on furniture price increases due to tariffs is not detailed in the provided reports, it's worth noting that tariffs on imported goods can lead to higher prices for consumers. Furniture imports are often subject to tariffs, which can increase costs for manufacturers and consumers alike. The overall average effective tariff rate for the US is high, suggesting that furniture prices may also be affected, although the exact impact might vary based on the country of origin and specific tariffs applied.
Coffee
There is minimal direct impact from US tariffs on coffee prices. Coffee is generally not a major target for tariffs, and much of the coffee consumed in the US is imported from countries with favorable trade agreements or lower tariffs. However, coffee prices can fluctuate due to factors like global supply and demand, currency fluctuations, and transportation costs rather than tariffs.
The General Impact of Tariffs on Consumer Prices
The overall impact of 2025 tariffs is a 1.8% increase in consumer prices in the short term, equivalent to an average household income loss of about $2,400. In the long term, the price increase settles at 1.5%, translating to a loss of around $2,100 per household. Households at the lower end of the income distribution face $1,300 in annual pre-substitution losses.
Many businesses are likely still absorbing much of the cost of the duties imposed by President Donald Trump. However, as costs continue to mount, companies may eventually pass these costs on to consumers through higher prices.
The Labor Department reported that slowing rent increases and cheaper gas prices are offsetting some impacts of President Donald Trump's tariffs. However, companies such as e.l.f. Beauty, which makes a majority of its products in China, have already raised prices by a dollar on its entire product assortment due to tariff costs.
The BLS is facing a government hiring freeze, which has led to a reduction in the data it collects for each inflation report. This reduction in data collection could potentially underestimate the actual impact of tariffs on consumer prices.
Some companies could resort to "shrinkflation," reducing the package size of a good while keeping the price the same. This strategy would allow companies to maintain their profit margins while passing on the increased costs to consumers.
In conclusion, the impact of US tariffs on consumer prices varies across different sectors. While some sectors, like shoes and furniture, have seen significant price increases, other sectors, like coffee, have experienced minimal direct impact. As the tariff situation continues to evolve, it's essential to monitor the impact on consumer prices and the overall economy.
[1] Source: UBS economist Alan Detmeister [2] Source: Federal Reserve Economic Data (FRED) [3] Source: The Washington Post
- The government's hiring freeze at the BLS could potentially underestimate the actual impact of tariffs on consumer prices, as reduced data collection might not fully capture the increases in goods like real estate.
- In Seattle's business sector, some companies are already adjusting their strategies to accommodate the increased costs from tariffs, such as resizing their products (shrinkflation) to maintain profit margins, which might indirectly affect real estate prices due to changes in consumer purchasing power.
- Procter & Gamble, known for a wide array of consumer products, joins the growing list of businesses in various sectors, including real estate, that face higher costs due to US tariffs. These increased costs may lead to further job losses and lower business profits, impacting the overall economy.
