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.

Companies may preemptively raise prices during geopolitical turmoil not just to gouge customers, but to build a cash buffer against a storm of unknown duration and severity. This reactionary strategy is born from a paranoid survival instinct.

Unlike in 2021-2022, companies are now more reluctant to raise prices. Key factors include consumer resistance after high inflation, anchored inflation expectations, political scrutiny, and significant uncertainty over tariff policies, which makes firms fear losing market share if they act prematurely.

For decades, supply chains were optimized for cost reduction. Post-crisis, the focus has shifted to security, resilience, and localization. This move away from pure efficiency by adding redundancy and increasing defense spending is inherently inflationary, reversing a long-term deflationary trend.

Despite investor fears over geopolitics and inflation, companies are successfully navigating rising costs by passing them on to consumers. Strong revenue surprises show this pricing power is offsetting pressures at an index level, indicating market resilience rather than a widespread demand shock.

Maximizing profits in a crisis, such as a hardware store hiking shovel prices during a blizzard, ignores the powerful economic force of fairness. While rational by traditional models, such actions cause public outrage that can inflict far more long-term brand damage than the short-term profits are worth.

It's the volatility and unpredictability within the supply chain environment—rather than the magnitude of a single shock—that can dramatically amplify the inflationary effects of other events, like energy price spikes. This suggests central banks need situation-specific responses.

History suggests that if inflation remains high for too long, it can alter public psychology. Businesses may become less hesitant to raise prices, and consumers may grow more accepting of them. This shift can create a self-perpetuating feedback loop, or 'snowball' effect, making inflation much harder for the central bank to control.

A minor, announced gas price hike in China triggered massive panic buying, fueled by social media and fears of war-related shortages. This demonstrates a classic feedback loop where the collective fear of a problem can manifest that very problem, turning a manageable price adjustment into a self-inflicted supply crisis.