Inflation grows increasingly likely as companies start to buckle under tariffs

The corporate pricing dam is cracking — companies are raising prices, or signaling that increases are coming, to absorb some of the costs of the Trump administration's tariffs.Why it matters: Americans are already under strain from rapidly rising prices during the Biden administration. Another bout of hot inflation — at a time when the labor market is slowing down — will hurt.The big picture: President Trump's announcement of steep tariffs in April triggered widespread worries of higher prices. But the process took time. There were delays and back-and-forth between the White House and other countries over rates.Companies, fearful that high prices could spook their customers, held the line in the meantime. They stockpiled goods before tariffs kicked in.Where it stands: Reality is biting. At the beginning of the month, the U.S. started levying tariffs of about 15% on dozens of countries. That was on top of China tariffs of 30%. Companies are "coming to the point where their margins are getting squeezed and they need to start passing that onto consumers," Beth Hammack, president of the Federal Reserve Bank of Cleveland, told CBS News earlier this month.Zoom in: Home Depot had been able to maintain prices on imported products because they'd stockpiled before tariffs took effect. But now, the company expects "modest price movement in some categories" (corporate speak for price increases), an executive said on a call with investors Tuesday.Last month, Procter & Gamble, maker of toothpaste, laundry detergent, etc., said that it would raise prices in August on about a quarter of its products as a result of tariffs.What to watch: The auto industry could be next. New vehicle prices have been mostly flat as automakers have eaten the cost of tariffs.That won't last, according to former GM executive Warren Browne, now head of RFQ Insights, which advises automotive suppliers.He annualized June's 2025 tariff data to conclude that tariffs are on track to cost automakers $2,200 per vehicle this year. "GM, Ford, Stellantis, Toyota — They can't support $2,200 per vehicle. That's impossible to sustain," he tells Axios.Instead, he says, automakers will quietly pass on the higher costs by raising sticker prices on 2026 models hitting showrooms over the next month or two.While the Consumer Price Index has so far portrayed inflation as muted, other indicators are starting to show price increases:Wholesale prices rose at the fastest pace in three years last month, suggesting that pressure on retailers is ramping up.Harvard Business School's tariff tracker shows modest price increases across the handful of big retailers it's following.By the numbers: U.S. businesses absorbed more than half of the tariff costs through June, per a recent analysis from Goldman Sachs economists.Consumers absorbed 22% — but Goldman projects that consumers' share will ultimately rise to 67%, if patterns hold.The other side: Treasury Secretary Scott Bessent told Bloomberg last week that exporters and companies will continue to eat the tariffs."There are probably a lot of corporate margins that got very fat during COVID, and now we're seeing a return to a normal pre-COVID margin."Between the lines: During Trump's first term, U.S. firms initially absorbed tariffs, putting off price increases until they could no longer avoid it, as Harvard's tracker notes.This time around, Trump has aggressively warned businesses — including the U.S. automakers — not to raise prices. Walmart should "EAT THE TARIFFS," he said in May. The bottom line: Businesses are trying to be amenable to the president — but it's not clear how long they can keep that up.

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