Federal Reserve of Atlanta: Companies expect to pass on 50% of tariff costs to consumers.

A recent survey by the Atlanta Fed shows that businesses expect to pass on about 50% of tariff-related costs to American consumers, who are still recovering from the inflationary impact of the pandemic. Atlanta Fed researchers pointed out in a blog post on Thursday that this result indicates that many businesses are expecting to take a different approach than in 2018, when they passed on almost all tariff costs to customers. "Our research shows that many businesses believe that current consumers are sensitive enough to prices (perhaps because the recent wave of inflation has not yet receded) that they cannot pass on all cost increases without weakening demand," Atlanta Fed researchers Kevin Foster, Aaron Jalca, and Brent Meyer wrote. The survey, conducted from April 7-18, asked businesses to estimate how high a percentage of tariff costs could be passed on to customers based on current demand levels. The results showed that businesses with strong demand expect to pass on a higher proportion of costs than those with weak sales. During the survey period, President Donald Trump imposed a 10% tariff on almost all countries, and a 25% tariff on all foreign-made cars and parts, with significantly higher tariff levels facing China and the EU at that time. On average, businesses told Atlanta Fed researchers that they expect to pass on 51.1% of costs without affecting current demand in a 10% cost increase situation; and 47.3% of tariffs in a 25% cost increase scenario. Since Trump announced tariff policies, business owners have had to deal with multiple policy adjustments: the president temporarily lowered tariffs on several countries during negotiations and gave tariff exemptions on certain products. Last week, a US court initially blocked and then reinstated most tariffs in an appeal process, further increasing uncertainty. With the final status of tariffs and their impact on prices and economic growth still unclear, Fed officials are currently maintaining stable interest rates and waiting for more data. Tariffs have not yet clearly shown up in official data on prices or the labor market, inflation has eased slightly, and employment remains stable. However, both consumers and business leaders are concerned about how tariffs will affect their profits. A survey in the Fed's Beige Book released on Wednesday showed a decline in economic activity in recent weeks under uncertainty. The report found that businesses planning to raise prices due to tariffs expect to implement them within three months, with some regions expecting these price hikes to be "strong, significant, or substantial."