Economists point out that while price increases can occur swiftly, reductions often lag behind. This phenomenon, known as price stickiness, describes how certain products, especially those with intricate supply chains like automobiles, are slower to lower prices once raised. Economists like Robert Triest from Northwestern University argue that the longer it takes companies to adjust their costs, the longer those increased prices stick around.
For commodities such as food and fuel, however, prices could drop rapidly once tariffs are rescinded, as their procurement costs fluctuate more readily. Kenneth Louie, from Penn State University, clarifies that the removal of tariffs will likely lead to disinflation — where prices still rise but at a diminishing rate — rather than true deflation.
Robert Dolan from Harvard Business School further illustrates the concept of price experimentation, where tariffs push suppliers to reassess and potentially raise prices based on consumer willingness to pay, akin to what secondary ticket sellers do. Once prices are adjusted upward, they may not revert even if tariffs are lifted.
Carola Binder of the University of Texas highlights additional complexity, noting that changing prices on consumer goods, like a restaurant’s guacamole, involves logistical challenges that lead to further price stickiness. Philip Braun from Northwestern’s Kellogg School of Management adds that the duration of tariffs will disrupt markets, leading firms to explore alternative supply chains, affecting U.S. imports.
Joseph Gagnon from the Peterson Institute cautions that while some manufacturers may absorb costs in the short term, overall changes to supply chains are costly and protracted. The uncertainty from the White House regarding tariffs also causes hesitation among businesses, leading to delays in passing on price adjustments to consumers until clarity is achieved.
Economists warn that while prices rise rapidly, they tend to fall slowly. Factors such as price stickiness, supply chain adjustments, and consumer willingness to pay drive this trend. The removal of tariffs may lead to disinflation rather than deflation, with businesses hesitating to adjust pricing amidst uncertainty from the White House. Overall, consumers may face prolonged elevated prices even if tariffs are lifted soon.
Overall, the interplay between price stickiness and tariffs creates a landscape where price reductions lag despite changes in tariffs. As companies navigate their supply chains and adjust to economic realities, consumers may find themselves in a holding pattern, waiting longer for reassuring prices. The eventual outcomes will be influenced by manufacturers’ ability to absorb costs and the changing dynamics of supply chains, alongside tariff clarity.
Original Source: www.npr.org
