Inflation in the United States remained steady in the previous month, while prices for essential goods and services increased at a faster rate.
In the past few months, consumer prices have seen a notable increase due to the implementation of tariffs, particularly on imported goods. According to recent data, the average consumer price rise in the short run is approximately 1.8%, equivalent to a potential $2,400 annual income loss per household, assuming no intervention from the Federal Reserve [1].
The overall effective tariff rate on consumer goods currently stands at around 18.6%, the highest since the 1930s [1]. Sectors such as clothing and textiles have been hit hard, with shoes up around 39% and apparel 37% in the short run, and lasting increases of about 18-19% long term [1].
Businesses, especially small ones, are grappling with these tariff-driven cost increases in various ways. Some are passing some costs to consumers by raising prices and communicating the reasons to retain customer loyalty [2]. Others are reevaluating their supply chains, seeking to source goods from countries not subject to tariffs or local suppliers [2]. Streamlining operations and cutting overhead costs to offset higher import costs is another strategy being employed [2]. Seeking professional financial advice and sometimes using business lines of credit to manage cash flow and expenses caused by tariffs is also common [2].
However, not all tariff costs are immediately passed on to consumers. Some firms absorb tariff expenses, reducing profit margins rather than raising prices instantly, which has helped moderate overall inflation effects so far [3]. This dynamic results in mixed or subdued price increases in some sectors, despite the general upward pressure on consumer prices [3].
Wholesale prices have also risen about 3.3%, and experts warn consumers should prepare for continuing price increases as tariff effects ripple through the economy [5].
In the retail sector, prices for goods such as furniture and shoes have seen increases. For instance, shoe prices jumped 1.4% from June to July, though they are still just 0.9% more expensive than a year ago. The cost of furniture leapt 0.9% in July and is 3.2% higher than a year earlier [4].
Notable companies like e.l.f. Beauty, Ralph Lauren, Under Armour, and Warby Parker are among those raising prices in response to tariffs [4]. Tarang Amin, CEO of e.l.f. Beauty, stated that the company tends to lead in price hikes, with others following [4].
Matt Pavich, senior director of strategy and innovation at Revionics, stated that companies are raising prices selectively to offset tariffs, rather than across the board [4]. Procter & Gamble announced last month that it would increase prices on about a quarter of its products by mid-single-digit percentages [4].
Chair Jerome Powell of the Federal Reserve has warned that worsening inflation could keep the Fed on the sidelines [6]. With consumer prices continuing to rise, it remains to be seen how the economy will be affected in the long term.
References:
- CNN Business
- Inc.
- The Wall Street Journal
- The Associated Press
- Bloomberg
- CNBC
