Tariff costs haven't hit American shoppers' wallets much yet, but price hikes could start to pick up sharply in the coming weeks.
Businesses surveyed by the Federal Reserve said in the latest publication of its Beige Book economic report that tariffs have increased their costs either modestly or "pronouncedly."
"Contacts in a wide range of industries expected cost pressures to remain elevated in the coming months, increasing the likelihood that consumer prices will start to rise more rapidly by late summer," the Fed wrote.
The July report mentioned tariffs 75 times, which is fewer than the 107 and 122 times the word appears in the prior two reports, but well above the 23 and 49 mentions earlier in the year before President Donald Trump kicked off the trade war.
While much of the earlier discussion focused on uncertainty around policy and rates, the talk now is of price hikes as tariffs become more entrenched.
In particular, manufacturers reported being surcharged by their suppliers, especially for raw materials used in manufacturing and construction.
Several consumer packaged goods companies told the St. Louis Fed that their cost increases would begin showing up on grocery shelves in the next 90 days, and a manufacturing company in Memphis said it had raised prices "significantly" to offset the tariff cost on steel and aluminum.
Other businesses in the St. Louis district said they were managing costs in other ways, from a packaging company absorbing at least 10% in surcharges to stay competitive with larger manufacturers to a wellness center that started offering new add-on services in order to manage higher costs elsewhere.
And while many businesses said they passed along costs to consumers through price hikes, others said they held off due to price-sensitive consumers, which tightened their profit margins.
These new costs haven't yet appeared dramatically in the official data: retail sales continued a strong run last month, and prices have generally held steady. The latest consumer price index inched up by a modest 0.3% — far less than some economists were initially worried about.
However, prices may not remain stable for much longer as tariffs (and concerns about tariffs) reshape pricing decisions.
"It seems that prices have gone up out of fear that prices will go up," a construction materials supplier told the St. Louis Fed.
The Trump administration recently sent tariff letters to nearly two dozen trading partners, threatening duties as high as 50% starting from August 1. None of the four existing trade agreements with the UK, China, Vietnam, and Indonesia has yielded tariffs below 10%, suggesting that the baseline tariff imposed on April 2 may be here to stay.
