Amid tariffs, costs and prices are increasing, Cleveland Fed says

Since taking office in January, President Donald Trump has imposed a vast, shifting array of tariffs. Many economists predicted that they would raise costs and prices, and that seemed to be confirmed by two reports produced recently by the Federal Reserve Bank of Cleveland.

The bank is one of 12 in the United States, and its region includes all of Ohio and adjacent parts of Pennsylvania, West Virginia, and Kentucky.

Eight times a year, it conducts surveys of business and community leaders. It uses them to inform its contributions to the Federal Open Market Committee, which sets policies regarding the money supply and interest rates.

The results of the survey conducted between Sept. 18 and 25 were released last week.

A tariff is a tax on imports. Trump has said his strategy is to use them to bring back jobs that have fled the country since the free-trade agreements of the 1990s and the 2000s.

But so far, tariffs appear to have significantly increased companies' input costs and customers' prices — and given most employers an incentive to replace people with machines.

"Respondents said their firms' nonlabor costs had risen by an average of 6.8% over the past 12 months," the report said. "Roughly two-thirds indicated that they had raised prices to offset some portion of these higher costs, and more than half noted adopting new technologies or increasing automation to reduce overall nonlabor operating expenses. Respondents reported that their firms' selling prices had risen by an average of 3.3% over the past 12 months, and they expected greater price growth in the 12 months ahead."

Trump's unpredictable imposition and de-imposition of tariffs also might be taking a toll. In August, a panel of economists who study various aspects of the economy said that lack of predictability made it difficult for businesses to plan when and how to invest.

In a second report called the Beige Book, the Cleveland Fed last week said that uncertainty contributed to declines in business for manufacturers.

"Manufacturers reported modest declines in demand for goods, a situation which they attributed to tariffs and trade-policy uncertainty, and consumer spending declined slightly," it said. "On balance, contacts said that their employment levels increased slightly and that wage pressures grew modestly. Nonlabor cost pressures remained robust, and selling prices continued to grow modestly."

The Beige Book said the tariffs were increasing costs across a wide swath of the economy.

"Overall, nonlabor input costs rose at a robust pace in recent weeks, continuing the trend seen in the prior three reporting periods," it said. "Tariffs were frequently cited as drivers of these cost increases across industries. Many manufacturers reported tariff-related cost increases on raw materials, imported components, and chemical inputs. Retail contacts noted tariff-driven cost increases on vehicles, beef, coffee, and chocolate. Two contacts noted that foreign producers were factoring in tariffs and cutting prices accordingly to retain market share."

It added that consumer spending, a vital economic driver, is also down somewhat.

"Consumer spending declined slightly in recent weeks, and contacts expected demand to be flat in the coming months," the Beige Book said. "Several retail stores reported a drop in unit sales, and a large retailer reported lower in-store and online traffic. Similarly, a food and hospitality contact said that customers were 'more value aware,' and another large retailer reported that tariff concerns continued to drag down customer sentiment."

When it comes to tourism, Trump's pugnacious attitude toward our neighbors might not be helping.

"One tourism contact, who reported a year-over-year decline in activity, said that visits by Canadians fell by 50%," the Cleveland Fed reported. "Auto dealers generally reported that sales were flat to down, except for used car sales, which one dealership expected to remain strong in the coming months."

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