Inflation

Inflation Yet to Reflect Impact of Tariffs; Upstream Cost Pressures Beginning to Intensify

Input cost surge flags inflation risk. The ISM Manufacturing Prices Paid Index rose in April to its highest level since June 2022, signaling production cost increases across the supply chain. The upswing was driven primarily by tariff-related disruptions, with rising raw material costs a primary contributor. Historically, movements in this index have preceded shifts in consumer inflation, but the extent of pass-through will depend on the strength of consumer demand. With household budgets already strained and consumer confidence weakening, retailers may encounter heightened resistance to price increases. As a result, financial pressure could build, particularly in the manufacturing and logistics sectors, which may soften demand for big-box industrial space and reduce development activity.
 
Front-loading may delay consumer price hikes. A number of companies pulled inventories forward ahead of anticipated tariffs, fueling a surge in consumer goods imports in early 2025. The resulting inventory buildup may provide a temporary price buffer; however, when inventory cycles turn over, many businesses are likely to face cost pressures. Walmart recently warned that tariff-driven price hikes could surface by late May, likely posing the most risk to discretionary goods such as apparel, where April’s price declines suggest softer demand. Meanwhile, the continued rise in the Personal Care Index signals more resilient spending, which may enable beauty and health-related retail tenants to raise prices with less risk of losing customers.

Rising utility costs weigh on multifamily operations. The energy services category recorded a 1.5 percent increase in April, bringing the annual rate to 6.2 percent — one of the more volatile components of the CPI. This sustained rise in utility costs continues to pressure both tenants and landlords. The impact is often most acute across mid-market and lower-income multifamily properties. Tenants here are more price-sensitive and utility charges are less frequently passed through by owners, affecting a property’s operating income. Moving forward, rising energy expenses may prompt more landlords to invest in efficiency upgrades or shift utility costs to tenants where feasible.

Auto tariffs keep pressure on supply chains. New vehicle prices edged up slightly in March but remained broadly stable, suggesting inventory levels and pricing dynamics have yet to face significant disruption. Even so, the 25 percent tariffs on imported auto parts, steel and aluminum, may generate additional pressure on automakers and suppliers. Many manufacturers are expected to adopt a wait-andsee approach, as trade-related uncertainty continues to delay capital investment. Over time, reshoring and onshoring strategies could gain traction—particularly in regions with established automotive infrastructure—but the timing and scale of any shift remain highly contingent on future policy developments and expectations.