• First signs of tariff-related price increases expected in May inflation report.
  • Core inflation likely to stay subdued in April due to cooling travel costs and high retail inventories.
  • Consumers face tough choices as businesses pass on tariff costs or shipping surcharges.

Tariff impact delayed but coming

TD Cowen analysts warn that businesses are currently absorbing tariff costs using existing low-cost inventories, but this buffer will disappear by summer. The firm's research suggests the first visible effects will appear in May's Consumer Price Index data, with the full brunt hitting during peak summer months when inventory turnover accelerates.

"We're seeing a temporary reprieve in April from cooling travel and hospitality prices," said one analyst familiar with the research, speaking on condition of anonymity. "But the dam will break when retailers exhaust their pre-tariff stockpiles."

Squeezed from both sides

Consumers face what analysts describe as a "no-win scenario" - either paying higher retail prices as businesses pass through tariff costs, or shouldering increased shipping fees if companies try to maintain sticker prices. This comes as credit card delinquencies rise and personal savings rates decline, suggesting limited capacity to absorb additional costs.

Market observers note the timing creates complications for Federal Reserve policymakers, who had been anticipating smoother disinflation. The tariff effects could prolong elevated price pressures even as other inflationary drivers moderate.

Business adaptation strategies

Supply chain experts suggest some firms are exploring:

  • Accelerating inventory drawdowns to delay repricing
  • Reformulating products to avoid tariff categories
  • Shifting sourcing to alternative countries

However, these strategies have limits and implementation lags, particularly for smaller retailers with less supply chain flexibility. TD Cowen's analysis suggests most businesses will ultimately raise prices rather than accept compressed margins.

Correction: An earlier version misstated the timing of TD Securities' acquisition of Cowen Group; the $1.3 billion deal closed in 2023, not 2022.