Tariffs, Inflation And Shifting Consumer Habits Signal Retail Uncertainty Ahead
There is no one way to measure the health of the economy, but various data sets released this week paint some uncertainty into the future outlook on retail and consumer spending.
Among the slew of economic indicators was the U.S. Bureau of Labor and Statistics’ (BLS) Consumer Price Index (CPI) released yesterday. The monthly inflation benchmarker tracked a 2.9% increase in food prices in the past 12 months. The Food At Home category fell 0.1%, while Food Away From Home was up 0.3%.
While July’s CPI was within expert expectations, the price of meat, poultry, fish and eggs, up 5.2% over the last 12 months, stands out as a sign of concern for future pricing for key perishable grocery categories. The eggs index alone ticked up 16.4% year-over-year, while the inflation rate for nonalcoholic beverages was elevated by 3.6%.
In brief, this shows that the food price index has tapered off from its peak in August 2022 (11.2%) but is still higher than it was at this point last year (2.2%). The long tail of pandemic spending patterns continues to impact inflation rates, but these recent changes can also be attributed to tariff-related costs being passed down to consumers.
Volume imports for 2025 are expected to decline by 5.6% compared to the previous year, according to a recent report from the National Retail Federation (NRF) and international trade consultant group Hackett Associates.
“Tariffs are beginning to drive up consumer prices, and fewer imports will eventually mean fewer goods on store shelves,” said NRF VP for Supply Chain and Customs Policy Jonathan Gold, in a statement. “Small businesses especially are grappling with the ability to stay in business.”
Despite rising prices and a possible slowdown in international goods and supplies coming in, consumers are still out shopping.
Retail spending was up in July as summer sales promotions and the threat of tariff-induced price hikes ticked up purchasing behavior. Total retail sales (excluding automobiles and gas) were up 5.89% unadjusted year-over-year in July, according to the NRF’s Retail Monitor tracking.
“Month-over-month gains were sizeable against a weaker-than-normal June. We may be seeing growing inflationary impacts from tariffs since recent data shows price increases in commodity goods, particularly non-durables (predominantly CPG consumable products),” said NRF president and CEO Matthew Shay in a press release.
While still a small segment of sales, U.S. online grocery sales were up 26% year-over-year in July, compared to 2.7% total grocery growth, according to the latest Brick Meets Click Grocery Shopper Survey. During the month, eGrocery penetration hit a record of about 61% of U.S. households. Ecommerce doesn’t necessarily reflect a change in pricing; online is a prime place for consumers to compare promotions and shop for deals, showing how behaviors shift when wallets get lighter.
What does this all mean?
Uncertainty is plaguing the economy, and with a less-than-enthusiastic BLS jobs report at the beginning of the month, consumer confidence in economic stability appears to be waning. This will likely reduce spending across the board and drive more shoppers to make value-based purchasing decisions like opting for private label items.
In its Q2 report, Sprouts Farmers Market announced that expanding private-label offerings would be a priority, with 350 new products expected to roll out. The retailer’s store brand already accounts for 24% of sales.
From the brand perspective, tariffs are impacting pricing decisions and how to plan for the future. A series of LinkedIn posts from Carbone Fine Food CEO Eric Skae detail the impact of tariffs on his pasta sauce business, including high prices, tariff-induced supply chain challenges and a consumer unbalanced by the economic environment.
In a post two weeks ago, Skae rhetorically asked how others are managing through uncertainty. His response: “Based on my experience managing through uncertainty on many brands in many product classes, I’ve come to believe the single question that’s a reliable guide to a sound decision remains: ‘Are we a good value for the money?’”
Looking toward recent earnings calls, Westrock Coffee cautioned investors that tariffs on Brazilian coffee imports and “softening of consumer confidence” would likely increase pricing to customers. Mondelēz, SunOpta and BellRing Brands all pointed toward import taxes as a potential headwind for full-year growth markers.
