Perc Pineda, PhD
Chief Economist, PLASTICS
July 23, 2025
Headline inflation rose 2.7% in June, while core inflation was up 2.9%. Both measures were slightly higher than their year-over-year rates in May—2.4% for headline and 2.8% for core inflation. The latest data from the Bureau of Labor Statistics indicates that inflation remains moderate, though upward pressure persists in three key categories.
Energy services rose 7.5%, driven by a 5.8% increase in electricity and a 14.2% rise in utility (piped) gas service. Food prices were up 3.0% from a year ago, with food at home prices rising 2.4% and food-away-from-home prices increasing 3.8%. Shelter costs also rose 3.8% year-over-year in June.
Tariffs are—and aren’t—showing up in prices
When the apparel price index rose 0.4% in June, some industry observers were quick to suggest this signaled the early effects of higher tariffs on consumer prices. Perhaps. Food, which is more directly exposed to tariffs due to U.S. food imports, saw a modest 0.3% increase in June—less than the 0.4% uptick recorded in January.
Energy, also sensitive to tariffs given U.S. energy imports, presents a more nuanced picture. That said, energy products from Mexico and Canada that meet the USMCA rules of origin are exempt from tariffs. Although energy commodity prices rose 1.0% in June, they remained 7.9% lower than a year ago. In contrast, energy services posted the largest year-over-year increase—up 7.5%—driven largely by domestic factors, including above-average summer temperatures that increased demand and prices.
Some may argue that higher tariffs on automobiles and light trucks are shifting demand from new to used vehicles. Maybe. However, both new and used vehicle price indices declined in June—by 0.3% and 0.7%, respectively. On a year-over-year basis, new vehicle prices were up just 0.2%, while used vehicle prices rose 2.8%.
Cost pass-through from tariffs isn’t one-size-fits-all
The inflationary effects of tariffs tend to manifest with a lag and are uneven across goods and services. In sectors that follow an import-to-retail model, businesses are generally expected to pass on tariff-related cost increases to consumers—though the extent of this pass-through depends on the price elasticity of demand. Beyond the textbook “Econ 101” expectation that tariffs raise aggregate prices, the real-world impact is more nuanced: tariffs do not translate into higher retail prices on a one-to-one basis.
For example, while Walmart has acknowledged that it cannot absorb all cost increases from tariffs and will need to pass some of them on to consumers (as reported by CNN Business and NPR), pricing strategies vary across retailers. According to a recent analysis reported by The Wall Street Journal, “Amazon’s prices rose on 1,200 of its cheapest household goods, while competitor Walmart lowered prices on the same items by nearly 2%” following the announcement of new tariffs by the Trump administration (Wall Street Journal, July 21, 2025).
For goods and services that rely on imported components, the inflationary impact of tariffs is even less clear-cut. Much depends on business strategy and the share of imported inputs in the total value of the final product. This complexity was underscored when General Motors surprised many industry observers and financial analysts by announcing that it would not pass on tariff-related costs to consumers.
Pricing restraint in plastics manufacturing amid tariff uncertainty
In business-to-business transactions such as those in the plastics industry, it’s important to consider producer prices—specifically, the Producer Price Index (PPI). The Plastics Industry Association tracks 15 producer indices related to the sector, covering products including equipment and molds. These indices have not shown significant upward pressure. For example, in June, the PPI for plastic bottles rose 1.3% year-over-year, while the overall PPI for plastics increased just 0.6%. In contrast, the PPI for plastic pipe declined by 5.4% over the same period. These trends reflect underlying demand dynamics: weak homebuilding activity has dampened demand—and prices—for plastic pipes, while steady household spending has kept price increases for plastic bottles and packaging relatively contained.
From the supply side, there remains capacity for increased domestic plastics production, which could support import substitution without driving up prices. As U.S. trade and tariff policy continues to evolve, businesses affected by import costs—whether through finished goods or manufacturing inputs—must carefully weigh pricing decisions. For publicly traded companies, the implications for earnings are especially critical. Preemptively raising prices in direct proportion to announced tariffs is a risky strategy that could result in lost market share. Even if prices are later reduced when tariffs are lifted or renegotiated, there’s no guarantee that consumers will return.
The article underscores the complexity of how tariffs influence inflation, highlighting that their effects are neither immediate nor uniform across sectors. While some categories show modest price increases, others remain stable or even decline, reflecting the interplay of supply chain structures, demand conditions, and strategic business responses. In industries like plastics, where domestic production capacity exists, price pressures have remained contained despite evolving trade policies. Ultimately, the inflationary impact of tariffs depends less on their nominal rate and more on how businesses choose to absorb, pass on, or strategically manage those costs in a competitive market environment.
