Tariff Price Hikes ‘Smaller Than Anticipated’

In remarks prepared for delivery at the National Association for Business Economics Annual Meeting in Philadelphia, Paulson said monetary policy should look through the effects of tariffs on prices because the current conditions do not support a spillover into general inflation.

These conditions include a labor market that has discouraged turnover and job-hopping to get higher wages, retailers not passing on price increases, and monetary policy that has been restrictive for some time.

In terms of retailers’ actions, Paulson said “many firms report being focused on preserving market share and this makes them motivated to find creative ways to avoid passing on increased costs.

“For me, the bottom line is that I simply don’t see the type of conditions, especially in the labor market, which seem likely to turn tariff-induced price increases into sustained inflation,” Paulson said later in her remarks.

At the same time, there is reason to be cautious because both firms and consumers have grown accustomed to price increases after more than four years of inflation that has been above the Fed’s target, Paulson said.

“I do still expect some additional goods inflation over the next few quarters, due in part to current tariffs working their way through and also to new tariffs that have been announced,” Paulson said.

PYMNTS reported Thursday (Oct. 9) that heading into the holidays, merchants may make modest, selective price adjustments instead of broad increases in response to tariffs.

Merchants aim to preserve consumer volume while safeguarding as much margin as possible — where the willingness to sacrifice a few basis points of profit still helps maintain traffic through the crucial December quarter.

In September, PYMNTS reported that in many cases, firms found that raising prices in response to tariffs only accelerates margin decline. That is the case because while higher prices may cover some costs, they risk eroding brand loyalty and curbing sales volumes.