Businesses are transferring increased input costs due to tariffs onto consumers, resulting in higher prices, according to the Federal Reserve’s latest report.
The Federal Reserve’s recently released “Beige Book,” an anecdotal survey of domestic economic conditions, has highlighted a widespread trend wherein businesses across various sectors are raising prices to counter the additional costs imposed by tariffs. This trend was reported across all 12 of the Fed’s regional districts, reflecting a national impact.
“Many firms passed on at least a portion of cost increases to consumers through price hikes or surcharges,” noted the Beige Book. Companies that opted not to pass these costs on to consumers encountered narrowed profit margins, as consumer price sensitivity continues to grow.
The Labor Department reported an increase in the Consumer Price Index (CPI) in June, partially attributed to these tariffs, with the annual rise reaching 2.7% up from 2.4% in May and 2.3% in April. This increase aligns with economists’ predictions, who anticipated that the inflationary pressures from tariffs would become visible as summer progressed and as prior inventories cleared.
Fitch Ratings has cited the aggregate U.S. tariff rate at 14.1%, marking the highest rate in decades. This figure encompasses President Trump’s 10% general tariff, along with specific tariffs targeting China and certain individual goods. However, the country-specific “reciprocal” tariffs are currently on hold amid ongoing trade negotiations, and will remain paused until August 1.
Import prices recorded a modest increase of 0.1% in June, according to the Labor Department, yet they are down 0.2% compared to the previous year due to lower energy prices. This outcome fell short of economists’ expectations. Fuel import prices decreased by 0.7% in June, following a significant 5% drop in May, as tensions in the Middle East influenced global energy markets. West Texas Intermediate crude oil witnessed a decline of over 10% this month.
Excluding fuel and food imports, core import prices saw a moderate rise of 0.2% in June, following a smaller 0.1% increase in May.
Adding to the economic dynamics, the U.S. dollar has depreciated by approximately 9% since the start of the year, a trend exacerbated by the ongoing trade war initiated by President Trump. Economists suggest that this decline in the dollar’s value could further exacerbate inflation.
Michael Pearce, deputy chief U.S. economist at Oxford Economics, commented to Reuters, “Since the Trump administration began imposing tariffs, the dollar has depreciated, which could lead to a larger pass-through from tariffs to consumer prices.” He underscored the potential for a weaker dollar to amplify the likelihood of firms transferring a more significant share of tariff costs to consumers.