The impact of tariffs will accelerate: Prices are expected to rise across the board during the U.S. holiday shopping season

Media reports indicate that so far this year, the impact of Trump's tariffs has not been significant, but it is expected that the tariffs will begin to reflect in the prices consumers pay as the U.S. holiday shopping season approaches.

Since April of this year, Trump has imposed tariffs on a large number of goods from multiple countries, which has coincided with the common inflation indicators typically remaining between 2.5% and 3%.

Although economists expect that common inflation indicators such as the Consumer Price Index (CPI) and the Personal Consumption Expenditures Price Index (PCE) will not see a significant spike, they believe that tariffs will keep these indicators at a high level during periods when they should be declining.

Bank of America economist Aditya Bhave stated in a report:

"In recent months, there has been some questioning of whether tariffs have pushed up consumer inflation. We believe there is no doubt—tariffs have indeed pushed up consumer prices."

The current lack of noticeable impact from tariffs is due to businesses stockpiling goods before the tariffs took effect and absorbing some costs by compressing profit margins.

However, Bank of America expects that tariffs will increase the core PCE index, which the Federal Reserve uses to measure inflation, by about 0.5%. Bank of America estimates that the inflation rate in September was 2.9% with tariffs, while it would be closer to 2.4% without tariffs. This figure is similar to the data mentioned by Federal Reserve Chairman Jerome Powell on Wednesday. The annual growth rate of the core PCE was 2.9% in August.

Media reports state that a few percentage points of difference are very important for the Federal Reserve. The Fed is striving to keep core inflation, which excludes food and energy, at 2%, but this indicator has been above 2% since March 2021. Two regional Federal Reserve presidents, Jeffrey Schmid of the Kansas City Fed and Lorie Logan of the Dallas Fed, stated on Friday that they disagreed with the FOMC's decision to cut interest rates on Wednesday.

These differences are equally important for consumers. Bhave estimates that consumers bear about 50% to 70% of the tariff costs, with the remainder borne by businesses.

Tariffs Drive Price Increases, Consumers Foot the Bill

In real life, inflation means that the prices of goods such as coffee, furniture, and recently clothing have risen. According to data from the U.S. Bureau of Labor Statistics, clothing prices increased by 0.7% in September. Media reports state that although these goods have a small weight in the price index, their frequent purchases by consumers create a perception of inflation, leading to a self-reinforcing cycle that further drives up prices.

Analysts at TD Cowen stated in a report:

"Inflation in certain goods can have a disproportionate impact on consumer confidence, even if they have a small weight in the CPI."

Analysts noted that price increases in goods such as eggs create a "persistent and real feedback loop" in the weekly shopping experience. The psychological impact of these goods on consumers is greater than their statistical significance.

The agency pointed out that this holiday season may see more similar situations, as nearly all artificial Christmas trees are imported from China, and the costs of such goods are high under Trump's tariffs Cowen stated:

"Artificial Christmas trees are not unique, but they are a very typical example of how high tariffs on seasonal goods affect consumers' perception of inflation."

According to estimates from LendingTree based on government and private source data, if these tariffs are implemented during the 2024 holiday shopping season, consumers will spend an additional $40.6 billion.

LendingTree's Budget Lab further estimates that by June 2025, approximately 70.5% of the new tariff costs will have been passed on to consumers.

LendingTree's Chief Consumer Financial Analyst Matt Schultz said:

"This means that more Americans will have to rely on credit cards and personal loans to cover the costs of buying gifts. This is a harsh reality that many people will have to face."

According to the same estimates, LendingTree states that the tariff costs are averaged out to $132 per shopper