Economists are forecasting a significant rise in inflation for the final quarter of the year, driven by the increasing transfer of import tariff costs to consumers. This development is exerting pressure on household finances and presents a complex challenge for monetary policymakers.
Rising Consumer Prices Fueled by Tariffs
Experts anticipate an acceleration of inflationary trends in the fourth quarter, primarily due to businesses passing on the expenditures associated with new import taxes to their clientele. Projections from a recent survey of professional forecasters indicate that the Consumer Price Index (CPI) is expected to climb to an annualized rate of 3% during this period. This represents an increase from the 2.9% observed in August and would mark the highest inflation level recorded since May 2024. The consistent upward movement in consumer prices, as reflected by various metrics, underscores the profound influence of trade policies on the economic environment.
Several inflation indicators confirm this upward trajectory. Personal Consumption Expenditures (PCE), for instance, registered a 2.7% annual increase in August, a slight rise from 2.6% in July. Furthermore, core PCE, which omits the more volatile food and energy sectors and is often considered a more accurate gauge of underlying inflationary pressures, remained steady at 2.9% annually in August. These figures collectively illustrate that the cost of imported goods is growing due to imposed tariffs, which were originally intended to incentivize domestic manufacturing. Although companies initially hesitated to transfer these costs to avoid losing market share, recent surveys suggest a growing willingness among businesses to implement price adjustments in the coming months.
The Enduring Impact of Tariff-Induced Inflation
A crucial question revolves around the duration and extent to which these double-digit tariffs, which differ by country and industry, will continue to affect consumer prices. Analysis indicates that a substantial portion, approximately 70%, of these tariff costs has already been absorbed by consumers. However, due to reported delays in price increases by some businesses, further tariff-related inflationary pressures are expected in the near future. While some economists view this tariff impact as considerable yet temporary, its persistence could have lasting implications for economic stability.
Goldman Sachs analysts, for example, project that inflation, as measured by PCE (excluding food and energy), will reach 3.2% annually by December, up from 2.9% in August. If realized, this would represent the highest inflation reading since August 2023. Nevertheless, Goldman Sachs anticipates a subsequent decline in inflation starting in 2026. This outlook contrasts sharply with the preceding years, during which inflation generally trended downward. Following a post-pandemic surge to a 40-year high of 9.1% in June 2022, inflation receded as the Federal Reserve implemented interest rate hikes. While inflation has softened in certain key areas like rent, officials from the Federal Reserve have noted a rise in import prices. Last week, the Fed initiated its first interest rate cut since 2025, citing a weakening labor market. Although further rate reductions are possible, an uptick in inflation could constrain the central bank's ability to act as swiftly or aggressively as investors might desire, given its dual mandate to foster full employment and maintain price stability.