In a survey that surprises no one, the Federal Reserve Bank of Boston confirmed that tariffs will increase prices consumers pay as businesses expect to pass some of the increase in unit costs onto customers. Their report was based on the findings of a Morning Consult survey of 400+ small and medium sized businesses in late December on what their plans were regarding tariffs.
Note the timing of the survey though, as it's far ahead of when President Trump started his tariffs announcements, but it matches what we'd expect from businesses. If the unit cost of the things they sell go up, they would have to start passing some of that increase onto consumer.
What was surprising was the survey broke down how businesses would respond based on the actual tariffs. If the tariff rates were 10%, they would pass most of it onto consumers whereas at higher rates, such as 25%, the increase would be more modest.
Intuitively, this makes sense because customers could accept smaller increases, which represent a greater percentage of the tariff increases, but less likely to accept larger increases.
The survey also asked businesses to predict their expectations and many businesses expected the average tariff would be higher than they were in December 2024 but around 10% or less across all trading partners. 20% expected them to be 5% or less.
They all believed it would be higher but some of the figures announced by President Trump on “Liberation Day” certainly caught everyone by surprise.
The big takeaway, as a consumer, is that businesses all expected to pass the added costs onto the consumer over the next two years. Between tariffs and the continued upward pressure of inflation, prices continue to go up across all product categories.
If you have an urgent purchase need within the next two years, it might make sense to buy it now or run the risk of it going up in the near future as a result of tariffs. Otherwise, consider delaying purchases until after the threat of a tariff war have subsided. It's difficult to time this type of purchase because tariff announcements and pauses seem so unpredictable.
As for everyday purchases, look for domestic alternatives whenever possible as they wouldn't be subject to any tariffs. You may be able to find a local producer of certain foods, eggs, milk, and other staples that might be more expensive than imported options. We source billions in produce from countries like Canada and Mexico, a domestic producer might be more affordable if tariffs become even higher.
