A recent consumer confidence survey by the University of Michigan shows that under President Trump's whirlwind tariff policies, inflation expectations will reach their highest level since 1981 one year later.

A new analysis by the Boston Federal Reserve finds that it is correct for Americans to expect the cost of tariffs to be reflected in their receipts.

The researchers are based on the survey results of over 400 small and medium-sized enterprises conducted at the end of December last year, which explored expectations and plans for tariffs. Due to higher tariffs imposed on most of America's trading partners, respondents expect costs to rise and plan to pass on these costs to consumers in the form of price increases.

The conclusion drawn from the analysis is: "Enterprises plan to pass on the expected unit cost changes caused by tariffs to customers through price increases, and the degree of cost transmission will vary under different tariff scenarios

The company stated that the increase depends on the tariff situation. Interestingly, compared to the high tariff (25% rate) and uncertain (10% rate but variable) scenarios, they expect the largest increase in the low tariff (10% rate) scenario.

Customs duty is a type of tax paid by companies importing goods during customs clearance at the port of entry, and it is not paid by the exporting company or the exporting country. Enterprises have several options to offset additional costs, such as consuming costs or negotiating with suppliers, but the most common strategy is to pass on costs to consumers.

A survey by the University of Michigan found that consumers expect inflation to rise by 6.7% in one year, higher than last month's 4.9%, and long-term inflation expectations for the next 5 to 10 years have also increased from 4.1% in March to 4.4% in April. A new survey by the New York Federal Reserve has also found similar but less extreme expectations.

Figure: One year inflation expectations soar to the highest level since 1981 (changes in expected inflation rates, with the dark yellow line indicating the next year and the light yellow line indicating the next 5 years) (Source: University of Michigan, USA)

After President Trump lifted the high level of "Liberation Day" tariffs and announced partial exemptions for technology products, Capital Economics calculated in a recent report that the overall effective tariff rate for US imports is about 22%, lower than last week's 27%.

Despite the recent softening of the White House's tariff stance, President Trump's trade agenda has raised tariffs on US imports to their highest levels in over a century, driving up inflation expectations and lowering expectations for US economic growth.

The Boston Fed stated that importers expect the cost increase caused by tariffs to take about two years to fully reflect in prices. One variable that is not yet clear is how imposing tariffs on imported goods from the United States will affect the prices that domestic companies can afford, which will have a further impact on the inflation outlook.