President Donald Trump’s tariffs set off warnings from some economists fearful of a surge in prices for everyday products like sneakers, board games and tomatoes. Instead, inflation has eased since Trump took office, defying the gloomy forecasts.
The reprieve, however, is likely to run out within a matter of months, some economists told ABC News.
The decline of inflation owes in part to a flood of imports ahead of the levies, which allowed companies to stockpile non-tariffed goods and sell them with little change in price, economists said. Many retailers also swallowed the tax burden by eating into their profits or requesting that a supplier sell the product at a lower rate in order to offset a share of the cost, the economists said.
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But stockpiled goods will eventually run dry, just as companies will find their bottom lines crunched by diminishing profits, those economists said.
“Once everybody runs out of stockpiled inventory, everybody will be losing money,” Laura Veldkamp, a professor of economics and finance at Columbia University. “They’ll raise prices and it will be passed onto the consumer. It’s just a matter of when.”
In all, Trump’s new levies have hiked the average effective tariff rate to 18.6%, the highest since 1934, the Yale Budget Lab found earlier this month.
Tariffs put forward so far by Trump are expected to cost an average household an additional $2,400 this year, the Yale Budget Lab said.
Importers typically offset the tax burden in the form of higher prices for shoppers, though so far tariff-induced price increases have proven marginal. The overall inflation rate stands at 2.7%, below the 3% rate in January, before Trump took office.
In a social media post last week, Trump touted what he views as an absence of tariff-induced inflation.
“Tariffs have not caused Inflation, or any other problems for America, other than massive amounts of CASH pouring into our Treasury’s coffers. Also, it has been shown that, for the most part, Consumers aren’t even paying these Tariffs, it is mostly Companies and Governments, many of them Foreign, picking up the tabs,” Trump said.
Inflation will likely become more pronounced in the coming months, however, according to the economists ABC News spoke with.
Wholesale prices soared much faster than economists expected last month, government data showed, leaving producers on the hook for higher costs, which many economists attributed in part to tariffs.
Core inflation — a closely watched measure that strips out volatile food and energy prices — increased 3.1% over the year ending in July. That figure marked a slight uptick from the previous month.
A surge of imports ahead of the tariffs helped companies preserve relatively low prices, but those products are running out. The ultimate inflation impact will be felt by consumers as individual firms turn to products imported after the tariffs took hold, Kyle Handley, a professor of economics at the University of California, San Diego, told ABC News.
“Every company has a different level of stock in their warehouses and they’re running out of those at different rates,” Handley said. “We’re getting close to when some companies will run out. People will start to feel it.”
Importers of perishable foods like vegetables face an especially acute challenge because they cannot stockpile products ahead of tariffs, since the fresh produce would rot.
Many retailers have also borne some of the added tax burden by eating away at profits. Automakers Volkswagen, General Motors and Stellantis each reported incurring more than $1 billion in losses suffered as a result of tariffs over a recent three-month period.
Some major retail chains, including Walmart, have warned of price increases as a means of offsetting tariff-related costs.
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Firms may seek to keep prices low and sacrifice some profits in an effort to protect their share of a given market, but eventually they will need to ease the burden, Elizabeth Renter, senior economist at NerdWallet, told ABC News.
“Companies may try to hold off on raising prices to hang onto their customers, but they can only do this for so long,” Renter added.
Back-to-school shoppers may notice a jump in apparel prices as importers weather tariffs, while car buyers could see a price hike for new models as soon as this fall.
“Consumers aren’t likely to experience a surge in prices across the board in a single week or month. Instead, the impact of tariffs on consumer prices will happen at a trickle, affecting various categories of goods at different times and to different extents,” Renter said.
