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Written by: Tim Pierotti
Last week the NY Fed published the results of a survey of regional manufacturers and service providers titled, “Are Businesses Absorbing the Tariffs or Passing Them On to Their Customers?,” Federal Reserve Bank of New York Liberty Street Economics, June 4, 2025.
“Results indicate most businesses passed on at least some of the higher tariffs to their customers, with nearly a third of manufacturers and about 45 percent of service firms fully passing along all tariff-induced cost increases by raising their prices.”
One of the key questions market participants want and need to better understand is the impact tariffs will have on inflation. On Wednesday, we will get at least a partial read into those impacts with the release of the May CPI data. The consensus of Wall Street economists estimates that we will see the beginning of tariff impacts in the May report and expect to see inflation rising sequentially through the summer months. This survey from the NY Fed suggests the consensus will be right. Below are some additional commentaries from the economists who conducted the study:
“Consistent with textbook economics, tariffs generally resulted in higher prices to customers. Indeed, roughly half of businesses reported raising prices of goods directly subject to tariffs. Interestingly, a significant share of businesses also reported raising the selling prices of their goods and services unaffected by tariffs…something similar happened in 2018-19 as firms increased their prices on dryers when tariffs rose on washing machines from China, even though dryers were not subject to tariffs.”
While their surveys did suggest that some of these companies were working to source goods domestically, the impact of tariffs on employment has, so far, been a negative one:
“There were some signs that the sharp and rapid increase in tariffs affected employment levels and capital investments. Adjustments to headcounts were fairly modest but slightly tilted toward a small reduction among both manufacturers and service firms.”
While these results may be intuitively close to what one might assume, they do make clear that tariffs are a consumption tax to be borne by the consumer. The point we have been making is that consumption taxes are regressive, placing the largest burden on working Americans who consume all of their income, as opposed to wealthier Americans who have the ability to save and invest some of that income. Our view is that the likely result of these taxes will be a sharper than currently priced in, hit to consumer confidence, business confidence and economic growth.
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