Businesses are raising prices after tariffs — even on unaffected goods

How it works: About 110 manufacturers and more than 200 service firms in the New York and New Jersey area were surveyed during the first week of May.

• That's before tariffs on China were reduced from 145% to 30%, and before the boomerang court decisions that invalidated the tariffs before temporarily reinstating them.
• 90% of manufacturers, and three-quarters of service firms, said they import some goods, and are exposed to higher tariffs.

By the numbers: About three-quarters of firms said they were fully or somewhat passing along tariff increases to customers.

• About half of companies reported a decrease in their bottom line due to tariffs. Some have reduced headcount.
• "A significant share" said they raised prices of goods and services unaffected by tariffs — a way to spread higher costs across inventory, or to take advantage of their customers' expectations that prices are rising.

The big picture: Similar trends are underway nationwide, according to the Federal Reserve's Beige Book — a collection of anecdotes from businesses across the U.S. that was released on Wednesday.

• The Fed called out "widespread reports" of businesses expecting costs and prices to rise at a faster rate down the line.
• All of the 12 Fed districts found that "higher tariff rates were putting upward pressure on costs and prices," though businesses planned in different ways — including possibly spreading price hikes across all items, mirroring responses from manufacturers in New York.
• A heavy construction equipment supplier told the New York Fed they were raising prices on goods unaffected by tariffs "to enjoy the extra margin before tariffs increased their costs," the Beige Book said.
• One contact told San Francisco Fed officials that "price increases that had been implemented in anticipation of certain tariffs were not rolled back once those tariffs were removed."

Zoom out: After the first Trump administration raised tariffs on washing machines, the price of dryers — unaffected by tariffs — also went up, as companies took advantage of the moment.

• A point of contention during the high inflation of 2022 was whether businesses were "taking price," i.e., using the moment to fatten their profit margins.

The other side: A top Fed official recently cautioned that companies were unlikely to raise prices unless absolutely necessary.

• "It doesn't happen often because of the risk of losing market share to competitors or squandering the allegiance of loyal customers," Fed governor Christopher Waller said last week.
• "So while this may happen in isolated instances, I do not believe it will be a significant source of additional inflation above and beyond the tariff-induced increase," he added.

The bottom line: Higher tariffs result in higher prices. This is textbook economics, the authors of the New York Fed report point out.

Editor's note: This story has been updated throughout with new information from the Beige Book.