Businesses across the economy are passing increased input costs from tariffs along to consumers in the form of higher prices, the Federal Reserve’s latest anecdotal survey of domestic economic conditions — commonly referred to as the “beige book” — found.
Higher costs from tariffs were reported by businesses in all of the Fed’s 12 regional districts, and many made the choice to raise prices as a result.
“Many firms passed on at least a portion of cost increases to consumers through price hikes or surcharges,” the Fed’s July beige book, released Wednesday, reported.
Those businesses that didn’t push the additional costs through to their customers saw restricted profit margins, the beige book said, noting consumers’ “growing price sensitivity.”
Inflation in the Labor Department’s consumer price index (CPI) jumped in June, partly as a result of the tariffs.
The CPI ticked up to a 2.7-percent annual increase last month from 2.4 percent in May and 2.3 percent in April.
The uptick was in line with expectations. Many economists have been predicting that inflation coming from tariffs would show up in prices over the summer after the clearing of inventories of wholesale goods purchases made prior to the tariffs.
Fitch Ratings recently put the aggregate U.S. tariff rate at 14.1 percent, the highest in decades.
While President Trump has instituted a 10-percent general tariff, along with China-specific tariffs and targeted tariffs on some individual goods, his country-specific “reciprocal” tariffs have been paused until Aug. 1 as trade negotiations continue.
Import prices advanced by 0.1 percent in June and deflated by 0.2 percent relative to last year, the Labor Department reported Thursday.
The number was below economists’ expectations and reflected lower energy prices.
Fuel import prices slid by 0.7 percent last month after dropping 5 percent during the previous month amid rising tensions and conflict in the Middle East. West Texas Intermediate crude oil is down more than 10 percent on the month.
Taking out fuel and food imports, core import prices increased by 0.2 percent in June after rising 0.1 percent in May.
The U.S. dollar is also losing value now relative to other currencies, having fallen about 9 percent since the beginning of the year amid President Trump’s trade war.
Economists say the weaker dollar could boost inflation.
“Since the Trump administration began imposing tariffs, the dollar has depreciated, which could lead to a larger pass-through from tariffs to consumer prices,” Michael Pearce, deputy chief U.S. economist at Oxford Economics, told the Reuters news agency. “A weaker dollar boosts the likelihood that firms pass on a larger share of tariffs.”
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