Consumer Prices Likely to Reflect Tariffs During the Holiday Season
As families prepare for their holiday shopping, they may notice that prices seem a bit higher. This increase is due to tariffs on a wide range of goods that began earlier in the year.
Although the effect of these tariffs hasn't been dramatic thus far, experts predict they will start to make a more noticeable impact on consumer prices just in time for the holiday season.
The Effect of Tariffs on Inflation
These tariffs have been introduced amidst a period of modest inflation, with most measures indicating a rate between 2.5% and 3%. While no substantial surge in these indicators is anticipated, the tariffs are expected to maintain these levels when they might otherwise have decreased.
There has been some debate as to whether these tariffs have contributed to higher inflation for consumers. However, most agree that this is indeed the case. Despite the fact that the impact of tariffs has been somewhat restrained until now, as companies have built up inventories and absorbed some of the costs through reduced profit margins, it is expected that these tariffs will cause an increase of approximately half a percentage point in the core measure of inflation.
The Real-World Impact of Tariffs
These percentage point differences are significant. For the Federal Reserve, which aims to keep inflation at 2%, this is an important consideration. But for average consumers, these differences also matter. It is estimated that shoppers are shouldering between 50% and 70% of the total costs of these tariffs, with businesses absorbing the rest.
In practical terms, this means higher prices for everyday items like coffee, furniture, and clothing. Even though these items make up a small part of the price indexes, they are items that consumers buy frequently. Therefore, they can create a perception of inflation, which can then lead to a cycle that drives prices higher.
Even items that don't seem significant can shape consumer perception more than their statistical significance might suggest. For example, price increases in items such as eggs create a feedback loop that consumers experience every week at the grocery store.
Impact on the Holiday Season
This holiday season could see more of these price increases. For instance, most artificial Christmas trees are imported from countries that are subject to high tariffs. This is just one example of how high-tariff, seasonal goods can shape consumer perceptions of inflation.
If these tariffs had been in place during the previous holiday season, it is estimated that shoppers would have spent an additional $40.6 billion. Furthermore, it is believed that the majority of new tariffs were passed onto consumers in the following months.
This means that many Americans would have had to rely on credit cards and personal loans to cover the costs of holiday gifts. This is an unfortunate reality that many people may face. Based on these estimates, the cost of tariffs comes out to around $132 per shopper.
So, as you prepare for your holiday shopping, be prepared for the possibility of higher prices due to tariffs.