Despite economists’ early warnings and the hefty tariffs that have already generated around $100 billion for the U.S. Treasury, consumer prices have not spiked as expected, according to Fortune.
Inflation has stayed surprisingly mild, hovering at 2.4% after four consecutive months of lower-than-forecast readings. Even as customs duties are on track to bring in a record $300 billion this year, shoppers aren’t feeling a major squeeze at checkout, yet.
Several factors help to explain this unexpected outcome.
1. Tariff effects take time
Many of the new tariffs are still working their way through the system. Some, such as steel and aluminum duties, began this spring, with further increases implemented in June.
Others, including steep taxes on certain Chinese imports, have been delayed or introduced in stages. Recent inflation data only covers up to May, meaning the full impact may not appear until future reports.
2. Stockpiling delays price hikes
Larger companies moved quickly to import extra goods before tariffs took effect. This stockpiling strategy has helped them maintain steady prices for now, as they continue to sell inventory acquired at lower costs.
However, as those reserves dwindle, many analysts expect price adjustments to trickle down to consumers.
3. Small businesses feel the pinch
Unlike big corporations, small businesses often lack the resources to stock up or absorb added costs easily. Some have chosen to swallow higher import expenses rather than risk alienating price-sensitive customers.
Data from the Commerce Department and research from Bank of America indicate that many smaller firms saw stagnant income growth and paid significantly more in tariffs compared to recent years.
4. Uncertainty clouds pricing decisions
For many companies, setting new prices is complicated by fluctuating costs and uncertain future supply rates.
As Eugenio Aleman, chief economist at Raymond James, explained in an interview with Fortune, businesses often price goods based on what it will cost to replace them later. If replacement costs remain unclear, firms hesitate to make major price changes.
5. Consumers are more cautious
Years of inflation and tighter budgets have made Americans more selective. Pandemic-era savings cushions have largely disappeared, and consumers today are far more sensitive to price increases.
Former Federal Reserve economist Claudia Sahm told Fortune that in 2021 and 2022, many consumers had extra cash and could absorb price hikes, but that willingness has faded.
6. Foreign producers shoulder some burden
Some overseas suppliers, including major Japanese carmakers, have reduced prices to offset tariffs.
Policy advisor Mark DiPlacido told Fortune that many foreign exporters have absorbed costs instead of passing them on to U.S. consumers.
What comes next for consumers?
Experts emphasize that tariffs do not create instant price spikes. Instead, they lead to complicated cost negotiations that unfold gradually. As stockpiles dwindle and new goods arrive with higher costs, consumers may start to see more price increases.
Here are some practical ways to prepare your finances for potential inflation:
- Build or boost your emergency savings. SoFi Checking is offering 3.8% interest, plus a potential $300 signup bonus. (May change without notice.) Having extra cash set aside can help cover higher bills without resorting to debt.
- Cut back on nonessential spending. Review subscriptions, luxury purchases, and other flexible expenses to free up room in your budget.
- Shop smarter now. Consider buying nonperishable staples in advance or timing large purchases before potential price hikes.
- Slash expenses with discounts and memberships. For example, on dining, travel, eyeglasses, prescriptions and more with AARP. $15/year with auto-renewal. Join now and save hundreds.
- Review and lock in long-term contracts. Evaluate insurance policies, service agreements, and fixed-rate loans to secure current rates.
- Stay informed. Keep an eye on economic updates and adjust your budget as conditions change.
Taking small, proactive steps today can help make any future price increases more manageable.
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