The U.S. economy has thus far avoided high inflation due to companies stockpiling products ahead of tariffs, keeping prices stable. However, as these inventories deplete, businesses must restock at elevated costs. This scenario particularly impacts basic consumer goods and automobiles. Companies that previously delayed tariff expenses are now forced to confront rising costs, which may lead to price increases for consumers. The outcome hinges on whether companies pass costs onto consumers or manage costs through layoffs, influencing employment and federal interest rate decisions.
"Everybody was front running tariffs. They were basically buying things at a discount to their future cost," said Dryden Pence, chief investment officer of Pence Capital Management.
Companies will no longer be able to use their previous stockpiles as a crutch to avoid making crunch-time decisions. They will have to pass through costs to consumers, or see their margins fall.
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