Key Points

  • A New York Fed survey shows businesses expect inflation could rise to as high as 4% over the next 12 months, with tariffs imposed by the Trump administration intensifying concerns about price pressures.
  • Many businesses expressed "concerns about tariffs and their impact on costs," the New York Fed said Wednesday, with the survey showing that import-dependent businesses had more pessimistic inflation expectations.
  • "Businesses that do not rely on imports expect cost increases of about 5%, while those that rely entirely on imports expect cost increases of about 9%." The New York Fed said the survey was conducted from February 2 to February 12.

In-Depth Analysis

U.S. President Donald Trump on Wednesday granted U.S. automakers a one-month tariff exemption, a day after he imposed 25% tariffs on imports from Canada and Mexico and raised tariffs on Chinese imports to 20%.

"We will grant a one-month exemption for autos imported through USMCA (United States-Mexico-Canada Agreement)," White House Press Secretary Karoline Leavitt said, referring to the trade agreement signed with Canada and Mexico during Trump's first term.

"Reciprocal tariffs will still take effect on April 2, but at the request of USMCA-related companies, the president granted them a one-month exemption to avoid putting them at an economic disadvantage," she said at a press briefing.

Leavitt said Trump spoke by phone with the CEOs of Ford, General Motors, and Stellantis on Wednesday morning.

"They proactively requested the call and made the request, and the president was happy to accommodate," she said.

The tariffs have sparked concerns across the business community about a resurgence of price pressures.

"American families and businesses are suffering from high costs—this is one of the top issues they want policymakers to address," Neil Bradley, chief policy officer at the U.S. Chamber of Commerce, said in a statement Monday.

"Tariffs will only push prices higher and exacerbate the economic pain for ordinary Americans across the country," he said. "We urge a reconsideration of this policy and an end to these tariffs as soon as possible."

The import tariffs that took effect Tuesday, combined with a 10% tariff on goods from other countries, could push prices of food, beverages, and other everyday retail items up by 0.81 to 1.63 percentage points, according to researchers at the Atlanta Fed.

The New York Fed said businesses located in New York and New Jersey expect the Consumer Price Index (CPI) to rise by 3.5% to 4% over the next 12 months. They "expect both cost and price increases to be higher in 2025."

In February 2024, these businesses had only forecast CPI to rise 3% over the next year, with long-term inflation expectations stable at around 3%, the regional Fed bank said. Fed policymakers aim to keep inflation at 2%.

Discussions about tariffs among business executives and consumers are "clearly affecting views on inflation this year," New York Fed President John Williams said Tuesday in a Bloomberg webcast.

"In most surveys, I don't see much indication that this is about long-term inflation or future inflation, but more about near-term inflation," he said.

Analysts at BofA Securities said in a note to clients Wednesday that the damage from import tariffs could extend well beyond inflation.

"The escalating trade conflict poses risks to U.S. supply chains, inflation, and corporate earnings, and negative headlines could lead to a slowdown in consumer spending in the near term," they said.

Trump acknowledged in his State of the Union address Tuesday that the import tariffs would cause some disruption but downplayed these costs as a price worth paying.

"Tariffs are about making America rich again and making America great again," he said. "There will be a little disturbance. We're okay with that. It won't be much."