Why Your Costs Are Rising Even Though Inflation "Cooled"

A client who runs a small import-dependent retail business asked me recently why his input costs kept climbing even as the news kept reporting that inflation was easing. It's a fair question — and the honest answer is that both things are true at once, for different reasons, and it's worth understanding why if you're running a business or managing a household budget right now.

What's actually happening with tariffs and prices.

Tariff-related cost pressure has been building through 2026, but it hasn't hit all at once — it's arrived in waves as businesses work through pre-tariff inventory and gradually adjust pricing. Research from the Federal Reserve Bank of New York found that small businesses have been particularly exposed: firms reporting tariff-related challenges were significantly less likely to expect revenue or employment growth in 2026, even after controlling for size, age, and profitability. By and large, these businesses have responded by passing tariff costs on to customers rather than absorbing them.

That pass-through has been slower than many expected. Economic research suggests that a large share of tariff costs initially landed on U.S. importers rather than consumers, as businesses drew down stockpiled inventory and hesitated to raise prices all at once. But that cushion is fading. By some estimates, the delayed pass-through is now substantially complete, meaning the tariff-driven price increases that were "in the pipeline" for much of the year are now showing up at the register.

Where it's showing up most.

Tariff-sensitive categories — consumer electronics, autos, apparel, and furniture — have seen the sharpest price increases. Goods that rely heavily on imported components are simply more exposed than domestically-produced services. One estimate from the Tax Foundation put the average household cost of tariffs at roughly $1,000 in 2025, rising to $1,300 in 2026 — a real, if often invisible, tax increase on everyday spending.

At the same time, some of the more tariff-exposed categories, like furniture and apparel, have actually shown signs of easing in the most recent data, suggesting the worst of the pass-through in those specific categories may be behind us — even as other categories continue to adjust.

What this means if you run a business:

• If you import materials, components, or finished goods, the tariff exposure is a cost structure issue, not just a pricing issue. It's worth reassessing supplier relationships and, where possible, sourcing diversification.
• If you're pricing your own products or services, the data suggests most small businesses in your position have already begun passing these costs through. If you haven't adjusted pricing to reflect input cost increases, it's worth running the numbers on your margins.
• If tariff-related uncertainty is affecting your growth plans, you're not alone — the Fed's own research shows this pessimism is now measurable and widespread among small businesses nationally.

What this means for your household budget:

Inflation has been described as "cooling" in some recent headlines, but that's mostly reflecting a slowdown in energy prices — not a full retreat in the cost of goods. Core goods prices, especially in tariff-exposed categories, are still working through delayed increases. If your household budget assumes prices are stabilizing across the board, it's worth stress-testing that assumption against your actual spending categories, particularly anything involving imported goods.

The bottom line: tariffs function like a tax that doesn't show up on any bill — it's baked into the price of the item before you ever see the receipt. Understanding where your specific exposure is, whether as a business owner or a household, is the first step toward planning around it rather than being surprised by it.

If you want to talk through how tariff-driven cost pressure is affecting your business's margins or your household budget, click Book A Meeting.

FAQ: Tariffs, Inflation, and Rising Costs

1. Why are prices still rising if inflation is supposedly cooling down?

Headlines describing inflation as "cooling" are largely reflecting a slowdown in energy prices, not a broad retreat in the cost of goods. Meanwhile, tariff-driven price increases have been arriving in delayed waves throughout 2026, as businesses worked through pre-tariff inventory before raising prices. That delayed pass-through is now largely complete, meaning tariff-related cost increases that had been building for months are now showing up at the register even as headline inflation numbers look calmer.

2. Who actually pays for tariffs — businesses or consumers?

Initially, a large share of tariff costs landed on U.S. importers rather than consumers, as businesses drew down existing inventory and hesitated to raise prices immediately. But that cushion fades over time. Research shows most small businesses facing tariff-related cost increases have ultimately passed those costs on to customers rather than absorbing them indefinitely.

3. How much are tariffs costing the average household?

The Tax Foundation estimates the average household tariff cost was roughly $1,000 in 2025, rising to approximately $1,300 in 2026. This functions like an invisible tax — it's built into the price of goods before a consumer ever sees a receipt, rather than appearing as a separate line item.

4. Which products are most affected by tariff-driven price increases?

Categories that rely heavily on imported components have seen the sharpest price increases, including consumer electronics, autos, apparel, and furniture. Domestically-produced services have generally been far less exposed than goods with significant import content.

5. Are tariff-related price increases starting to ease in any categories?

In some tariff-sensitive categories, particularly furniture and apparel, recent data shows early signs of easing, suggesting the worst of the pass-through in those specific categories may be behind us. However, this doesn't mean tariff pressure has fully resolved across the broader economy — other categories continue adjusting on their own timeline.

6. How are tariffs affecting small business growth and hiring plans?

Research from the Federal Reserve Bank of New York found that small businesses reporting tariff-related challenges were significantly less likely to expect revenue or employment growth in 2026, even after accounting for differences in business size, age, and profitability. This pessimism is now measurable and widespread among small businesses nationally, not isolated to a few industries.

7. What should a business owner who imports goods do about rising tariff costs?

For businesses that import materials, components, or finished goods, tariff exposure is fundamentally a cost structure issue rather than just a pricing decision. It's worth reassessing supplier relationships and exploring sourcing diversification where possible, rather than relying solely on price increases to offset rising input costs.

8. Should I adjust my household budget if I assumed inflation was stabilizing?

It's worth stress-testing that assumption against your actual spending categories, particularly anything involving imported goods. Since tariff-driven cost increases have been arriving in delayed waves rather than all at once, a budget built on the assumption that "inflation cooling" means broad price stability may not reflect what's actually happening in tariff-exposed categories like electronics, autos, and furniture.