- Three-quarters of manufacturing and service firms passed some tariff costs to customers.
- Some businesses mitigated impacts by switching to domestic suppliers.
- Tariff-related price pressures contribute to elevated inflation expectations.
Firms Shift Costs as Tariffs Bite
A New York Federal Reserve survey reveals that 75% of both factory and service firms have passed through at least some portion of recent tariff increases to their customers. The findings, based on responses from businesses across sectors, highlight how trade policies continue to ripple through the economy.
"We're seeing near-universal cost absorption in some form," said one analyst familiar with the survey results, speaking on condition of anonymity. "The question now is how much more pricing power remains in the system."
Domestic Sourcing as a Buffer
The survey also noted an emerging trend of companies shifting to domestic suppliers to blunt tariff impacts. While this strategy appears to be helping some firms manage costs, industry experts caution that such transitions often come with their own challenges, including higher production expenses and supply chain reconfiguration costs.
One manufacturing executive, who asked not to be named as they weren't authorized to discuss pricing strategies, told us: "We've moved about 15% of our sourcing stateside. It costs more, but at least we're not at the mercy of tariff announcements."
Inflation Concerns Mount
These developments come as inflation expectations show signs of firming. The New York Fed's May report showed three-year inflation expectations ticking up 0.2 percentage points, even as the one-year outlook held steady at 3.6%. The tariff pass-through documented in the survey likely contributes to these persistent price pressures.
Market watchers will be closely monitoring whether these trends lead to more widespread price increases across consumer goods categories. Several firms surveyed indicated they expect to implement additional price hikes in 2025 if tariff policies remain unchanged.