From grocery store shelves to auto shops and electronics aisles, tariffs are quietly but steadily pushing up the cost of everyday essentials — just as the U.S. labor market shows fresh signs of fragility.
A new Bureau of Labor Statistics report released Thursday highlights how tariff-sensitive items are weighing on household budgets. Apparel prices climbed 0.5%, video and audio products rose the same amount, and motor vehicle parts jumped 0.6%. New car prices edged up 0.3%, while energy costs increased 0.7%.
The grocery aisle delivered the biggest jolt: food prices surged 0.6% in August, the steepest monthly rise since summer 2022. Furniture and bedding also became 0.3% more expensive — up 4.7% year over year — while tools and hardware spiked 0.8%, reflecting how manufacturing-related goods are especially exposed. Coffee lovers felt the sharpest sting: a 3.6% monthly increase, translating to a 20.9% leap compared with a year ago.
Taken individually, these increases may not sound seismic. But together they add up to a worrying trend, one that is beginning to unsettle both consumers and policymakers at the Federal Reserve.
“We’ve already been seeing tariffs in the data for months,” said Luke Tilley, chief economist at Wilmington Trust. “The problem is, consumers weren’t in a good position to absorb these higher costs.”
The middle-class squeeze
For now, wary consumers are cushioning the blow by cutting back on discretionary spending, particularly on services, leaving companies with less pricing power. Even so, inflation near 3% on both headline and core measures remains well above the Fed’s 2% target.
“The middle-class squeeze from tariffs is here,” said Heather Long, chief economist at Navy Federal Credit Union. “Food, gas, clothing, and shelter all saw big jumps in August. And this is just the beginning — the pain will deepen as more costs are passed on.”
A stagflation dilemma
The persistence of these price hikes, coupled with a slowing labor market, is raising stagflation concerns at the Fed. Initial unemployment claims recently hit their highest level since 2021, while broader data suggest virtually no net job creation this year.
Policymakers now face a delicate balance: inflationary pressures from tariffs versus weakening employment that argues for looser policy. Markets are betting heavily that the Fed will side with growth. Futures tied to the federal funds rate are pricing in six quarter-point cuts through 2026 — more than the Fed’s own forecast of four.
“The mild inflationary push from tariffs is being outweighed by a slowdown in jobs, in the economy, and in consumer spending,” Tilley said. “It’s only a matter of time before the Fed cuts rates.”
What comes next
The Fed’s next policy meeting is just days away. While officials debate whether tariffs represent temporary noise or a more persistent inflationary threat, households are left grappling with a harsher reality: daily necessities are costing more, paychecks are stretching less, and the promise of relief may hinge on how quickly the Fed acts.
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