Analysis of the Impact of Tariff Cost Pass-Through on US Equities Corporate Earnings and Inflation

Based on the latest market data, research reports, and policy developments, I present to you a

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According to research data from Morningstar, in 2025, U.S. import prices (including tariff-related costs) rose by nearly

, while core commodity prices only increased by approximately [1]. This significant gap reveals the key characteristic of current tariff pass-through:

Cost Pass-Through Tier	2025 Growth Rate	Pass-Through Ratio
Import Prices (Including Tariffs)	~9.8%	Benchmark
Core Commodity Prices	~1.1%	Enterprises absorb approximately 90%
Consumer Prices	~0.8%	Consumers bear approximately 10%

1. Inventory Buffering Effect
   : Enterprises hoarded large amounts of inventory before tariffs were implemented, temporarily delaying the realization of tariff cash costs [1]
2. Low Effective Tariff Rate
   : A joint study by Harvard University and the University of Chicago shows that the effective tariff collection rate at the end of September 2025 was only
   14.1%
   , approximately half of the officially announced tax rate [3]
3. Enterprises Prioritize Margin Protection
   : Most enterprises choose to compress profit margins rather than raise prices rashly to avoid losing customers [2]

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Despite facing tariff pressures, Wall Street remains optimistic about the 2026 earnings outlook for U.S. equities:

Forecast Institution	2026 S&P 500 EPS Growth Rate	Evaluation
Goldman Sachs	+12%	AI productivity improvement + steady economic growth
LPL Research	+7.5%	Conservative estimate, buffer reserved for tariff risks
Market Consensus	+14%-15%	Reflects cautious optimism

Data from FactSet shows that in 2025, the S&P 500 saw 7% revenue growth and

earnings growth, achieving growth even as the effective tariff rate soared from 2.4% to 16.8% [4].

• Automotive Vehicles
  (Impact Score 8.5/10): Highly dependent on imported supply chains, with significant profit margin compression
• Retail
  (7.8/10): Limited price increase ability due to consumer price sensitivity
• Consumer Discretionary
  (7.2/10): Demand for durable goods may shrink

• Utilities
  (3.5/10),
  Healthcare
  (4.5/10),
  Financial Services
  (4.0/10): Possess strong cost pass-through capabilities

As

, enterprises’ ability to absorb costs is weakening. LPL Research stated, “Enterprises must continue to drive profit margin expansion to cope with tariffs” [5]. This means:

• The first half of 2026 will see the
  peak of tariff pass-through
  (expected to reach 95% intensity in Q1)
• More enterprises will choose to raise prices rather than continue compressing profits
• Profit margins may bottom out in Q2 2026, followed by gradual recovery

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December 2025 CPI data shows:

• Headline CPI rose
  +2.7%
  year-over-year and +0.3% month-over-month
• Core CPI rose
  +2.6%
  year-over-year and +0.2% month-over-month
• PCE (the Federal Reserve’s preferred indicator) is expected to remain in the
  2.6%-2.8%
  range [2][3]

Institutional Forecast	2025 Tariff-Driven Inflation Increase	2026 Outlook	Timing of Returning to 2% Target
Federal Reserve Bank of New York (Williams)	+0.5pp	Peaks at 3% in Q1	2027
Moody’s	+0.4pp	Gradually declines	2028
Nomura	+0.4pp	Peaks in Q1	End of 2026

Analysis from Moody’s shows that tariff pass-through is expected to

, with automakers and retailers passing tariff costs on to consumers during the holiday season [6].

• Goods Inflation
  vs
  Services Inflation
  Divergence: Core goods prices fluctuate with tariff pass-through, while services inflation remains sticky (around 3.5%)
• Food Prices
  Have Risen: Food prices rose 0.7% month-over-month in December, the largest monthly increase since October 2022 [3]
• Durable Goods Prices
  are expected to rise
  4.5%
  cumulatively from 2025 to 2027

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The Federal Reserve has implemented

since September 2025, cumulatively reducing rates by 75 basis points, and the federal funds rate is now in the range [7].

According to the minutes of the December 2025 FOMC meeting, the consensus among Federal Reserve officials includes [7]:

“Most participants believe that the possibility of tariffs causing persistent inflationary pressures is low.”

• The rise in inflation is regarded as a
  temporary
  factor, and there is no need to respond with interest rate hikes
• Employment risks are rising, and policy focus is shifting to “full employment”
• It is expected that the current interest rate range will be maintained in 2026, and the next interest rate cut may be initiated in July

Scenario	Policy Response	Rationale
Temporary surge in tariff-driven inflation	Keep interest rates unchanged	Wait for the pass-through effect to naturally subside
Inflation remains above 3%	Pause interest rate cuts	Maintain the credibility of the 2% inflation target
Significant slowdown in economic growth	Accelerate interest rate cuts	Respond to the negative impact of tariffs on growth

Notably, the Federal Reserve is facing

. The Trump administration has demanded that the Federal Reserve sharply cut interest rates to 1%, threatening with a Department of Justice investigation. Federal Reserve Chair Jerome Powell clearly stated his commitment to defending policy independence, emphasizing that “if independence is compromised, it will lead to economic instability and higher inflation” [3].

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• Defensive Sectors
  : Consumer Staples (+0.98% daily performance), Healthcare, Utilities
• Enterprises with Pricing Power
  : Companies with strong brand premium capabilities and diversified supply chains
• AI-Driven Productivity Improvement
  : Earnings growth momentum in the technology sector

• Consumer Discretionary
  (daily decline of -1.%): Sensitive to shrinking consumer spending
• Highly Leveraged Enterprises
  : Profit margin compression combined with financing cost pressures
• Manufacturers Dependent on a Single Supply Chain

Risk	Impact Level	Trigger Condition
Further Tariff Escalation	High	Supreme Court ruling or breakdown of trade negotiations
Unanchored Inflation Expectations	Medium-High	Sustained rise in consumer inflation expectations
Demand Contraction Triggered by Enterprise Price Hikes	Medium	Decline in consumer purchasing power
Compromised Federal Reserve Policy Independence	High	Forced acceleration of interest rate cut pace

• January 27-28, 2026
  : FOMC meeting, expected to keep interest rates unchanged
• Q1 2026
  : Peak period of tariff pass-through, inflation may surge temporarily
• Mid-2026
  : CPI data will reflect the full tariff pass-through effect

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The pass-through of tariff costs to consumers is accelerating, but

. Currently, enterprises still absorb approximately 90% of tariff costs, but this situation is changing. As inventories are depleted and profit margin compression pressures increase, the peak of pass-through is expected to arrive in Q1 2026, at which point consumer prices may face more significant upward pressure.

1. Short Term
   (H1 2026): Defensive allocation is preferred, focus on Consumer Staples, Healthcare, and Utilities
2. Medium Term
   (H2-Q4 2026): If inflation falls as expected, gradually increase allocation to cyclical assets
3. Long Term
   : Focus on high-quality enterprises with diversified supply chain capabilities and pricing power

The Federal Reserve’s response strategy shows that it views tariff-induced inflation as a

and will not change the accommodative direction of monetary policy in the short term, but if inflation stickiness exceeds expectations or inflation expectations become unanchored, the FOMC may re-evaluate the interest rate path.

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[1] Morningstar - “Inflation Set to Rise as Tariff Costs Hit Consumers in 2026” (https://www.morningstar.com/economy/inflation-set-rise-tariff-costs-hit-consumers-2026)

[2] CNBC - “Here’s the inflation breakdown for December 2025” (https://www.cnbc.com/2026/01/13/cpi-inflation-december-2025-breakdown.html)

[3] The New York Times - “Why Haven’t Tariffs Had a Bigger Impact on Prices” (https://www.nytimes.com/live/2026/01/13/business/inflation-report-cpi/why-havent-tariffs-had-a-bigger-impact-on-prices)

[4] The Street - “Goldman Sachs sends strong message on S&P 500 earnings outlook” (https://www.thestreet.com/investing/stocks/goldman-sachs-sends-strong-message-on-sp-500-earnings-outlook)

[5] LPL Research - “Weekly Market Commentary January 12, 2026” (https://www.cprwealthadvisors.com/weekly-market-commentary-january-12-2026-9e150)

[6] Nomura - “US Outlook 2026: Balancing Accelerating Growth and Sticky Inflation” (https://www.nomuraconnects.com/focused-thinking-posts/us-outlook-2026-balancing-accelerating-growth-and-sticky-inflation/)

[7] Federal Reserve - “Minutes of the Federal Open Market Committee December 10, 2025” (https://www.federalreserve.gov/monetarypolicy/fomcminutes20251210.htm)