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President Donald Trump’s tariffs are contributing to a general rise in inflation as businesses navigate whether to bear the costs or transfer them to consumers, as per a Federal Reserve report released Wednesday.
The central bank’s regular Beige Book report, issued eight times a year roughly every six weeks, classified overall economic growth as having “changed little” since the previous report on Sept. 3. Employment markets “were mostly stable” with demand being “muted” across most of the Fed’s 12 districts.
However, in terms of pricing, Trump’s tariffs introduced in April and then phased in over the following months were seen to have an effect.
“Prices increased further during the reporting period,” the report noted. “Input cost hikes due to tariffs were reported throughout many Districts, but the degree to which those increased costs were passed on to final prices varied.”
In certain instances, companies kept prices steady to maintain competitiveness and satisfy inflation-sensitive customers. Nonetheless, some enterprises indicated they were “fully transferring higher import costs to their clients.”
A few districts indicated that diminishing demand actually led to a reduction in prices for materials.
The trade conflict has intensified in recent days as China has mandated limits on prized rare earth materials, while Trump has countered with a threat of 100% tariffs on imports from China.
The release occurs amid a scarcity of significant economic data due to a government shutdown that has entered its third week. Key agencies such as the Labor and Commerce departments are largely inactive due to the deadlock.
However, Bureau of Labor Statistics employees have been recalled to release the critical consumer price index report, utilized as both an inflation indicator and for indexing cost of living adjustments for Social Security recipients. The CPI figure, which would typically have been made public on Wednesday, will now be available on Oct. 24, the final inflation figure the Fed will observe before its policy gathering on Oct. 28-29.
The Beige Book indicated that consumer expenditure dipped slightly in recent weeks, though it highlighted “strong” spending on luxury goods and travel by higher-income individuals. In contrast, lower and middle-income consumers sought discounts and promotional offers.
Future expectations showed improvement in several districts, although Philadelphia expressed caution regarding an extended government shutdown.
