While the consumer price index has ticked higher, it has also consistently come in below forecasts, though the latest reading on producer prices surprised to the upside.

Certain sectors heavily exposed to tariffs have seen spikes, but July data showed less upward price pressure on some goods prices and more pressure on some services.

“Despite this firmness, the tariff pass-through effect on consumer prices arguably has been less bad than expected so far,” JPMorgan economists led by Michael Feroli said in a note on Friday.

According to the bank, one potential explanation for the muted inflation numbers is that firms are eating the tariff cost at the expense of their profit margins, which are currently wide by historical standards and can accommodate the added costs without harming capital or operating budgets.

Other explanations include the delayed effects of duties on prices as companies draw down pre-tariff inventories, the seasonality of prices as inflation during the summer tends to be softer than in the winter, and tariff costs being passed though more via services rather than goods, JPMorgan added.

Yet another explanation could be that the tariff rates importers are actually paying are far below the headline numbers. A recent Barclays report found that the weighted-average levy in May was just 9% versus the bank’s estimate for 12%.

That’s because demand shifted away from countries with higher tariffs while more than half of U.S. imports that month were duty-free. Despite higher rates on Canada, for example, they don’t apply to goods covered under the U.S.-Mexico-Canada trade agreement.

“The real surprise in the U.S. economy’s resilience lies not in its reaction to tariffs but that the rise in the effective tariff rate has been more modest than commonly thought,” the report said.

To be sure, Barclays said the weighted-average rate has edged up to 10% today and predicted it will eventually settle at around 15%, as more products like pharmaceuticals are expected to get hit with levies and as loopholes close.

Businesses vs. consumers

Citi Research still doesn’t see much evidence of broad-based price pressure from tariffs and attributed the recent uptick in services to one-time anomalies, such as the 5.8% jump in portfolio management fees due to the rally in asset prices.

Citi also doesn’t expect consumers to get hit with big price hikes in the future, even as more levies are expected to roll out.

“Softer demand means firms will have difficulty passing tariff costs on to consumers,” chief US economist Andrew Hollenhorst said in a note. “While some firms might still attempt to slowly increase prices in coming months, the experience so far suggests these increases will be modest in size. This should reduce concerns about upside risk to inflation and increase concerns that decreased profit margins will cause firms to pullback on hiring.”

By contrast, Goldman Sachs predicted consumers will pay most of the tariff costs. As of June, they had absorbed 22%, but that figure should jump to 67% by October if the pattern seen in early rounds of Trump’s trade actions continues.

For businesses, the burden will shrink from 64% down to 8%, while foreign suppliers will see an uptick from 14% to 25% of the tariff impact.

Unraveling the mystery over what tariffs are doing—or not doing—to inflation has major implications for the Federal Reserve, which is trying to balance both sides of its dual mandate.

Tariffs have kept inflation stubbornly above the Fed’s 2% target, causing policymakers to hold off on rate cuts. But weakness in jobs data have raised alarms on employment, fueling demands for easing.

“The evidence so far is that almost all of the costs of tariffs are being born by domestic firms,” Citi’s Hollenhorst wrote. “The lack of pass-through should reduce lingering Fed official inflation concerns and allow for a series of rate cuts beginning in September. If anything markets are underpricing the potential for faster and/or deeper cuts.”