Tariffs and rising prices deepen divide as inflation bites lower-income Americans

Inflation is beginning to bite harder for lower-income Americans as data and interviews indicate businesses are passing some of the costs of sweeping import tariffs on to consumers.

Government figures released Thursday showed monthly price increases for several tariff-exposed categories, while economists and retailers pointed to widening differences in how households experience rising prices.

Labor Department data for August indicated clothing prices rose 0.5% from the prior month and grocery prices increased 0.6% for the month, with particularly strong gains for tariff-sensitive items such as coffee. Economists said those moves are consistent with early stages of firms passing higher import costs through to retail prices after broad U.S. import duties were imposed.

Those price changes are evident to shoppers in New York. Yanique Clarke, a nursing student in Manhattan who identifies as lower-income, said she has noticed “prices are really drastically high” for meat, vegetables and fruit and that back-to-school clothes were “very much higher compared to previous years.” Nancy Garcia, a middle-income worker in publishing and gifts, said she now compares prices more frequently and has observed higher prices even in supermarkets. Sylvia Sealy, a part-time nurse, said she checks multiple stores to find the best prices after noticing what she described as rising costs for groceries, clothes and building materials.

Economists and researchers warn the burden of tariffs is not spread evenly across income groups. "Lower-income households are almost tailor-made to be exposed to tariffs," said Ernie Tedeschi, director of economics at the Yale Budget Lab and a former federal economist. He said lower-income families tend to spend a larger share of their budgets on imports and on lower-priced goods that have borne the brunt of recent tariffs.

A Yale Budget Lab report released earlier this month estimated that, as of June, core goods prices were 1.9% above pre-2025 trends, suggesting tariffs have contributed to higher prices for items such as window coverings, appliances and electronics. The lab's analysis points to measurable effects on consumer goods, particularly in categories with substantial import exposure.

Some economists also pointed to other factors amplifying food price pressure. Food and agriculture employers have cited tighter labor supplies amid stricter immigration enforcement, and analysts said reductions in available workers could raise labor costs and contribute to higher retail food prices.

Retailers are responding to the split in consumer spending power. McDonald’s Chief Executive Chris Kempczinski said higher-income Americans continue to spend while middle- and lower-income customers are under pressure, prompting the fast-food chain to expand its value menu to attract more price-sensitive shoppers. "It's really kind of a two-tier economy," he said.

Broader income data underscore that divergence. Census Bureau statistics show inflation-adjusted household income rose last year only for the highest-earning households, with low- and middle-income brackets not seeing statistically significant gains. A Federal Reserve Bank of Boston study last month found that low- and middle-income consumers are carrying higher levels of credit card debt than before the coronavirus pandemic, while wealthier households have done more to prop up overall consumer spending.

Despite those strains among less affluent households, other indicators show the consumer sector as a whole remains relatively resilient. "Overall, the consumer is doing reasonably well," said Ryan Sweet, chief U.S. economist at Oxford Economics. He added, however, that households with smaller savings cushions are more vulnerable to tariff-driven price increases and other shocks.

Policy debates continue over how persistent tariff-driven inflation will be. Some economists caution that the measured rises may reflect only the early pass-through of higher import costs and that the full effects could take longer to appear across more categories. Others note that monthly price swings in food and apparel can be volatile and influenced by seasonal and weather-related factors.

Business leaders and analysts are watching consumption patterns closely. Small retailers have reported concerns about their margins amid higher input costs, and larger chains are adjusting promotions and product mixes to retain cost-conscious customers. How those corporate responses interact with wage trends, credit conditions and broader monetary policy will shape the distributional impact of inflation in coming months.

For now, the data and household accounts point to a bifurcated consumer landscape: wealthier households are sustaining spending, while lower- and middle-income Americans face growing pressure from higher prices on everyday goods. Analysts said the uneven effects of tariffs and other cost pressures warrant close attention from policymakers and businesses as they weigh responses aimed at easing the burden on the most vulnerable consumers.