Tariffs are raising prices, surveys show

• It's politically toxic, as Democrats recently learned.

The big picture: Tariffs are happening fast, and they're a moving target. Yesterday's 25% is today's 50%.

• Increases have yet to show up in the official inflation data.

State of play: Surveys and anecdotes about price increases are piling up.

• "Tariffs have increased the cost of doing business," a firm in transportation and warehousing said in the comments of yesterday's Institute for Supply Management report on activity in the service sector.
• The Beige Book, a collection of nationwide business anecdotes published by the Federal Reserve, said prices increased at a "moderate pace" since its last report in April.
• One standout anecdote: A clothing retailer told the Boston Fed it took a "rare step" to re-tag its inventory "with higher prices to cover the cost of tariffs, and those items will hit store shelves this summer."
• Tariff-related price hikes appear to be hitting the shelves at Walmart and Target, Business Insider reported this week. Employees have been posting pictures of certain products showing sharp increases.

Zoom in: About three-fourths of companies said they were either fully or somewhat passing along higher tariffs by raising prices, per a survey of businesses out Wednesday from the New York Fed.

• The survey was conducted among manufacturers and service firms early last month, before President Trump lowered tariffs on Chinese imports to 30% from 145%.
• While this is a regional survey of New York and New Jersey firms, the authors indicated that these are trends observed nationwide.

The intrigue: "A significant share" of firms surveyed said they raised prices of goods and services unaffected by tariffs, as a way to spread higher costs across inventory, or to take advantage of customer expectations that prices are rising.

• It's not a new phenomenon. After the first Trump administration raised tariffs on washing machines, the price of dryers — unaffected by tariffs — increased as well, while companies took advantage of the moment.
• A significant point of contention during the high inflation of 2022 was whether businesses were "taking price," or using the moment to fatten their profit margins at a time when consumers expected to pay more.

"A big increase in the tariff level is a perfect opportunity for companies to use a price shock to raise prices," Alex Jacquez, an economist who served in the Biden White House, said on a press call Wednesday.

• Nearly everyone has heard about the tariffs. "People are primed to expect prices to go up," he said.

Reality check: Tariff policies will increase inflation by 0.4 points in 2025 and 2026, "reducing the purchasing power of households and businesses," per the latest estimates from the Congressional Budget Office out yesterday.

• That's not nothing, but it's not near what we saw in 2022 and 2023.

The other side: There are some, particularly in the Trump administration, who argue the costs of tariffs are outweighed by the benefits, like returning production back to the U.S., creating better jobs, and strengthening supply chains.

Between the lines: Higher prices are going to hit differently than they did when inflation spiked in 2022. Back then the economy kept chugging along thanks to an overheated labor market, which gave companies the freedom to keep raising prices, and people had jobs and could afford to pay.

• The cushion is missing now, former Fed economist Claudia Sahm wrote on Substack. And that could make it harder to raise prices, she said.
• "Business may find it more difficult to pass on tariff-driven costs to consumers than they did pandemic-driven ones," she noted.

The bottom line: Prepare to pay more for more.