The New Economic Squeeze

Tariffs, Slow Growth, and the Return of Stagflation

Stagflation: when the economy stalls but your basket of goods still gets squeezed.

Tariffs can force prices up and could slow down growth. Prior to tariffs there were anticipation of stagflation. Expectations have not been beaten and so there has been cause for concern. We nearly saw price of eggs at $6/per dozen, peaking in March this year, before declining by 7.4% in June. In April 16th, we had a (2.2% contraction in Q1 2025), and July core CPI remained unchanged (excluding food and energy). US inflation remained stable in July at 2.7%, while core inflation (excluding food and energy) rose to 3.1%, according to the latest data from the Bureau of Labor Statistics. For July, the CPI increases were not dramatic enough to deter the Fed from reducing rates in September. Underlying US inflation sped up in July as Trump's latest tariffs raised cost for US based companies. We noted that many companies had stockpiled and importers were holding off on charging more as they burned through existing inventory.

Analyst predict that by October, consumers will be paying it's current 22% to 67%, as importers pass along tariffs to their customers. Luckily car companies are paying the tariffs for now, but by end of the year, tariffs may place 27.5% on car and car parts. Now in August, we notice energy prices still have remained steady. Also telling is that employment is declining in many industries. In the past, if more than half the ≈400 industries in the payroll survey were shedding jobs, we were in a recession,” per Moody’s Analytics chief economist Mark Zandi, followed up his earlier warning that the economy is on the brink of a recession. On Sunday, he pointed out that the start of a recession is often not clear until after the fact. For now, the jobs data don’t signal a recession yet, but more than half of U.S. industries are already shedding workers. “In July, over 53% of industries were cutting jobs, and only health care was adding meaningfully to payrolls.” The Fed is in a delicate position, balancing the need to combat inflation with the risk of further slowing the economy and potentially worsening unemployment.

Stagflation occurs when we witness stagnant or declining growth numbers. This is combined with growing unemployment and FOMC may try to apply monetary measures to stimulate growth, but in the process could also make inflation worst. On the flip side, Trump has been trying to boost productivity to fuel growth without having to raise prices. With his tariffs plan, he may have just have the opposite of this intended outcome. After all, high inflation, was what Powell from FOMC was trying to prevent all this time.

While tariff developments so far (with added higher tariffs from August 7th and the newest threat of a 100% chip tariffs), appear to promise higher inflation, US headline consumer price inflation has remained under 3.0% in the second quarter. Bank's economists had predicted tariffs could cause inflation and slow economic growth. At the start of the Q3 2025, technology and financial sectors led the growth both globally and in the US.

However, last month's global trade war was not responsible for the categories of goods that recorded price increases last month. Powell and Trump have been fighting against each other to lower interest rates this year. S&P 500 index showed record highs, up 0.3%. Fabric, sewing machines and supplies rose 2.6% in July, with some companies based from countries around the world impacted (India, Vietnam and China have higher exposure to impact of tariffs), also seeing how expensive it is now to import raw materials such as fabric and thread. Prices of car manufacturing are passing along steep tariffs on cars from countries like South Korea and Japan.

How Consumers and Businesses Can Prepare

With tariffs driving costs higher, growth slowing, and unemployment pressures mounting, both consumers and business owners need to act defensively. For households, that means reducing vulnerability through debt management, savings, and career resilience. For businesses, it means protecting margins, liquidity, and customer loyalty while preparing for further economic turbulence.

When facing stagflation, consumers should take proactive steps to strengthen financial resilience. Clearing high-interest debts early helps ease financial strain and provides flexibility, especially since rising unemployment can lengthen job searches and tighten access to credit. At the same time, maintaining three to six months of living expenses in an emergency fund creates a buffer against income shocks. Spending should be strategic—focusing on needs over wants, buying in bulk, and considering substitutes to help offset price increases. Finally, investing in professional marketability is essential: upskilling or cross-training in resilient fields such as healthcare or technology, expanding your network before you need it, and keeping your résumé updated can all help preserve competitiveness in a shifting job market.

For business owners, navigating stagflation requires a deliberate focus on resilience and adaptability. Reviewing pricing and cost structures is critical—shifting toward value-based pricing, streamlining operations, and reducing inefficiencies rather than relying on blanket price hikes. Preserving liquidity is equally important by tightening receivables, carefully managing inventory, and negotiating favorable terms with suppliers. Diversifying revenue streams helps reduce reliance on any single product, service, or client, while investing in core talent ensures that top employees remain engaged and prepared to maintain competitiveness during and after downturns. Business owners should also stress-test their models against scenarios such as falling sales, rising costs, or limited credit access, ensuring they are prepared for shocks. Finally, strengthening customer relationships through consistent quality, open communication, and adaptability to evolving needs helps safeguard loyalty in uncertain times.