U.S. companies use tariff refunds to offset Iran war inflation pressures

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U.S. tariff refunds offset inflation

Highlights

PepsiCo and McCormick & Company are using tariff refunds to offset increased inflation from the Iran war and higher commodity and freight costs.
Goldman Sachs warns that further escalation in the Iran conflict could drive oil above $100 a barrel, potentially raising monthly core inflation by 3 to 4 basis points.
BJ's Wholesale Club expects tariff refunds to reduce in-store prices by half a percent, while most companies use refunds to counter rising supply chain and energy expenses.

Refund payouts reshape corporate cost plans

As first reported by Fortune, the refund wave is giving importers cash relief at a time when many executives say the money is being redirected to absorb new inflationary pressures rather than expand margins.

PepsiCo Chief Financial Officer Steve Schmitt says the company expects more pressure from commodities and is using tariff refunds to help offset inflation while maintaining business investment. Chief Executive Ramon Laguarta adds that the Iran war, especially through higher gas prices, is affecting consumer behavior by reducing discretionary spending and visits to convenience stores.

McCormick & Company Chief Financial Officer Marcos Gabriel says the spice maker's $31 million in tariff refunds is set to counter higher costs after two price increases over the past year tied to tariffs and tight freight capacity. He says the Middle East conflict is driving additional inflation that the company had not previously anticipated, leading it to use most of the refund to cover those expenses.

Energy and shipping risks cloud inflation outlook

Economists have long argued that Trump's tariff policy is inflationary, and Goldman Sachs warns that prices remain elevated even after the IEEPA tariffs are struck down because levies under Sections 122, 232, and 301 of the 1974 Trade Act are still in place.

Although wholesale inflation fell last month as energy prices declined, analysts remain concerned that renewed U.S. attacks on Iran and tensions around the Strait of Hormuz could push costs higher again. Goldman Sachs chief U.S. economist David Mericle warns that if oil rises above $100 a barrel, as it did earlier in the conflict, monthly core inflation could increase by 3 to 4 basis points in the coming months.

Bank of America Securities analyst Steve Juneau says importers receiving refunds are likely to use the money to offset higher energy and shipping costs, while any benefit to consumers is more likely to come through slower price increases than direct price cuts. Some retailers are still passing through part of the gain, with BJ's Wholesale Club President and CEO Bob Eddy saying in May that tariff refunds would help lower in-store consumer prices by half a percent.

Rebecca Homkes of London Business School and Duke Corporate Executive Education says many companies are responding by pausing spending or strengthening supply chain reliability to manage geopolitical uncertainty. She says tariffs remain a top-three issue for executives, although the remaining measures are narrower in scope and are less likely to match the scale of the earlier IEEPA tariffs.

In our earlier article on Energean’s Israel-linked production disruption, we explained how the company suspended output for 41 days, then still lowered full-year guidance and cut its first-quarter dividend due to ongoing regional instability. We also noted that Energean’s heavy exposure to Israel’s gas market keeps the stock sensitive to the Middle East risk premium, even as management tried to reassure investors through insider share purchases.

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