Instead of immediately passing tariff costs to consumers, US corporations are initially absorbing the shock. They are mitigating the impact by reducing labor costs and accepting lower profitability, which explains the lag between tariff implementation and broad consumer inflation.

Post-pandemic, companies have shifted from setting prices on a fixed schedule to "state-dependent pricing." They now adjust prices more frequently in direct response to rising costs, causing inflation to pass through to consumers more quickly and persistently.

Kai Ryssdal explains that the current rise in consumer prices is a lagging effect of tariffs. For months, businesses absorbed these costs to protect market share. Now, with squeezed margins, they are forced to pass the costs on to consumers, resulting in a delayed but significant inflationary impact.

While March's CPI report showed a decline in used vehicle prices, the Manheim wholesale auction index shows prices are up 6.2% year-over-year. As wholesale prices are a leading indicator, this discrepancy signals that significant consumer-facing price hikes for used cars are imminent.

The CPI averages costs across 80,000 items, many of which are non-essentials or luxury goods. This method masks the true, higher inflation rate on basic necessities. For example, while the CPI showed a 72% cost increase over two decades, the actual cost of essentials like housing, food, and healthcare rose by a much larger 97%.

Robert Kaplan cautions against dismissing inflation risks. Many businesses are still absorbing tariff costs or working through pre-tariff inventory. He believes the full price impact will be passed on to consumers in 2026, potentially keeping inflation stickier than markets currently expect.

Contrary to the consensus view, Crossmark's Victoria Fernandez is concerned about resurgent inflation. She points to recent increases in housing price reports, noting they typically lead rental price increases by about six months, signaling future pressure on a key inflation component that the Fed may be ignoring.

In the 1970s, food inflation had a greater impact on CPI than energy. A similar pattern is emerging now, as the Strait of Hormuz disruption hits key fertilizer inputs like urea and sulfur. This creates a reliable six-month leading indicator for a major surge in food prices that markets are currently ignoring.

Recent data paints a conflicting picture. While forward-looking indicators for housing and the job market point to a softening economy, inflation metrics like the Producer Price Index (PPI) remain stubbornly high. This combination suggests a move toward a stagflationary environment.