The impact of tariffs will accelerate: Prices during the US holiday shopping season may rise across the board.

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Media reports say that so far this year, the impact of Trump’s tariffs has not been significant, but tariffs are expected to start being reflected in consumer prices as the U.S. holiday shopping season approaches.

Since April this year, Trump has imposed tariffs on a large number of goods and multiple countries. This approach has coincided with common inflation indicators staying between 2.5% and 3% this year.

Although economists expect that common inflation indicators such as the Consumer Price Index (CPI) and Personal Consumption Expenditures Price Index (PCE) will not surge dramatically, they believe that tariffs will keep these indicators at higher levels during periods when they would otherwise fall.

Bank of America economist Aditya Bhave said in a report:

"In recent months, some have questioned whether tariffs have driven up consumer inflation. We have no doubt—tariffs are indeed raising consumer prices."

The impact of tariffs is not obvious at present because businesses have stocked up in advance before tariffs took effect, and have absorbed some of the costs by squeezing profit margins.

However, Bank of America expects tariffs will increase the core PCE index used by the Federal Reserve to gauge inflation by about 0.5%. Bank of America estimates that September’s inflation rate is 2.9% with tariffs; without tariffs, it would be closer to 2.4%. This figure is close to the data cited by Fed Chair Powell on Wednesday. The annual growth rate of core PCE was 2.9% in August.

Media reports say that for the Federal Reserve, a difference of a few tenths of a percentage point is very significant. The Fed strives to keep core inflation—stripping out food and energy—at 2%, but this measure has stayed above 2% since March 2021. Two regional Fed presidents, Jeffrey Schmid of Kansas City and Lorie Logan of Dallas, said on Friday that they disagreed with the FOMC’s rate cut decision on Wednesday.

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

Tariffs drive prices up, consumers foot the bill

In real life, inflation means higher prices for goods like coffee, furniture, and, recently, clothing. According to U.S. Bureau of Labor Statistics data, clothing prices rose 0.7% in September. The media notes that even though these goods make up a small share of the price index, frequent purchases cause consumers to feel the effects of inflation, creating a self-reinforcing cycle that further pushes prices up.

Analysts at TD Cowen wrote in a report:

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

Analysts said, for example, price hikes in items like eggs create a "persistent and real feedback loop" in weekly shopping experiences. The psychological impact on consumers is greater than the statistical impact.

The firm points out that there may be more such cases this holiday season, since almost all artificial Christmas trees are imported from China, and these goods have a high cost under Trump’s tariffs.

Cowen said:

"Artificial Christmas trees aren’t unique, but they're a very typical example of how high-tariff seasonal goods affect consumers' perception of inflation."

According to LendingTree estimates based on government and private data, if these tariffs were already in place for the 2024 holiday shopping season, consumers would spend an extra $40.6 billion.

LendingTree’s Budget Lab further estimates that by June 2025, about 70.5% of the added tariff costs will have been passed onto consumers.

LendingTree Chief Consumer Finance Analyst Matt Schultz said:

"This means more Americans will have to rely on credit cards and personal loans to pay for gifts. It's a harsh reality many will have to face."

According to the same estimate, LendingTree said the tariff cost averages out to $132 per shopper.

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