Has Retail Inflation Actually Cooled, Or Is it Set To Ramp Up as 2025 Draws to a Close?

Inflation in the retail space has been a flashpoint for discussion (or argumentation) forever, but has escalated in intensity since the beginnings of the COVID era in 2020, with consumers, retailers, and analysts alike weighing in over the sticker shock that has affected many product categories in the intervening days, months, and years.

The latest consumer price index report issued by the Bureau of Labor Statistics on June 11 appears to have contained at least a glimmer of hope that inflationary pressure is easing, with the baseline index for all urban consumers (CPI-U) increasing just 0.1% on a seasonally adjusted basis in May, following a 0.2% uptick in April. Over the course of the past 12 months, the all items index exhibited an increase of 2.4% before seasonal adjustment -- and while this figure rests slightly above the Federal Reserve's stated goal of 2% annual inflation, it is significantly lower than the high observed in June 2022, where year-over-year inflation reached a staggering 9.1%.

Should retail industry experts, as well as consumers, rest easier based on the climbdown from sky-high inflation? That's debatable, at least according to Forbes contributor -- and co-founder and partner at Triangle Capital LLC -- Richard Kestenbaum.

Kestenbaum: 'Don't Believe' Retail Inflation Fears Have Moderated

After briefly pointing to recent reportage from both The Wall Street Journal and The New York Times indicating that annualizing inflation was lower than expected, with the latter publication being quoted as stating that inflation is "muted, with limited effects from tariffs," Kestenbaum suggested that his audience instead look forward to the impact that President Donald Trump's tariff policy might have in the long view, during the third and fourth quarters of 2025.

"When manufacturers abroad increase prices, it takes time to go through the system. Goods ordered today typically don’t get delivered for another 90-180 days. That’s the primary reason why inflation for May is moderate. The products being bought today were ordered and delivered before higher tariffs ever happened," he argued, continuing on to say that retailers were also bringing slow-moving inventory out of warehouses as a short-term fix, in addition to other factors.

"The CEOs I talk to in the supply chain are trying to hold the line. They are sharing the cost of the tariffs among manufactuers, wholesalers and retailers so that they don’t have to raise prices. That can work for a little while but it’s not going to work for very long," Kestenbaum added.

Can We Expect Tariff Pressures To Drive Inflation in Q3, Q4 of 2025?

Kestenbaum predicted that, due to the lag in timing between order placement, order fulfillment, and eventual merchandising of product on store shelves, retailers will likely not be forced into significant price increases tied to tariffs until later this year -- starting to show up during back-to-school season.

"You will start to see it in the back-to-school season. It won’t be in school basics that are ordered from manufacturers well in advance, like pencils and uniforms. You’ll see it in discretionary items that are ordered closer to delivery dates, like licensed products or the latest toys," he suggested. "The fourth quarter is where the real impact will come. That’s when almost no products on store shelves will have pre-tariff prices and increases will be unavoidable."

Kestenbaum elaborated upon his point, stating that retailers are restraining themselves from placing large orders on discretionary items out of caution related to macroeconomic uncertainty -- ultimately meaning that these items will be unavailable for shoppers who start late, and when these products do appear, they will be necessarily much pricier.

Less excess inventory, fewer sale items, a reduction in day-after items in combination with increased costs from tariffs will drive upward pricing pressure on retailers that cannot be ignored, the Forbes contributor stated in firmest terms. Finally, Kestenbaum argued that inflation is self-perpetuating once it kicks into high gear.

"Inflation is a self-accelerating phenomenon. The expectation of inflation causes workers to ask for more wages and their employers have to raise prices and the cycle keeps on going. Breaking the cycle is the challenge," he began.

"Any basic cost increase including tariffs will push the inflationary cycle. It’s on its way here and you will see it in good time," he concluded.