“Consumers Will Pay” – AutoZone Chief Executive

Since the reciprocal day, US producers have shouldered higher tariff costs from consumers. However, this will change since recent data highlights the rise in price for some products.

For example, audio equipment up by 14%, dresses up by 8% and hardware & lights up by 5%.

Ashley Furniture, the world’s largest furniture manufacturer, pre-announced before the reciprocal day of price rises. This Sunday, they announced a 3.5% – 12% range of price hikes due to increased manufacturing costs.

Pity can be felt for producers. Jay Powell noted that US producers have absorbed most of the burden, but time will tell when consumers start to feel the hit.

The current inflation data illustrates the time-lag that comes from the price hike. This anomaly is explained by the cost absorption by producers. What waits is cost-push inflation.

Why Households Should Be Concerned?

The trickle-down effects are inevitable in economics. It was seen in the 2008 financial crisis, where the mistakes of bankers led to mass unemployment and bankruptcies. The same could be applied to COVID, where quantitative easing (printing money through offering government bonds) led to excessive inflation and higher interest rates.

With tariffs most likely to stay, businesses will have a greater understanding of what their finances look like. In a free market economy, businesses will be enticed to pass costs to consumers. We can see from the price hike in audio equipment and dresses.

Households will face a conundrum of anticipating further interest rate hikes. The coming months are crucial in understanding inflation data. Given that NFP (non-farm payroll, which analyses the change in hiring) was delayed last week due to the government shutdown, it is expected to be weak.

This gives the Federal Reserve a dilemma. Lower interest rates quickly signal to households lower borrowing costs – potentially reducing short-term demand. Higher interest rates could balloon payment rates for households. These are fine margins for the Federal Reserve to work around.