A sharp rise in import costs rarely produces a matching rise in shop prices. The gap is explained by everything that happens to a product after it clears customs.
The border price is a small part of the total
By the time an imported item reaches a shelf it carries transport, warehousing, staff, rent, marketing and retail margin. The landed cost may be a minority of the final price.
Those domestic costs are unaffected by exchange rates or duties. A large movement in the imported component therefore dilutes into a modest movement overall.
The proportion varies enormously by product. Fuel and electronics are dominated by the imported component, while prepared food and clothing carry far more domestic cost.
Where duties enter the calculation
Customs duty is generally applied to the declared value at the border, often including freight and insurance. It is calculated before any domestic cost is added.
Because duty is charged on the wholesale value rather than the retail price, its effect on shelf prices is proportionally smaller than the rate suggests. Consumption taxes then apply on top of the duty-inclusive value.
Rates depend on the product's tariff classification and its declared origin. Classification disputes are common because small distinctions carry different rates.
Why contracts delay the effect
Retailers buy on contracts negotiated months ahead, frequently at fixed prices in an agreed currency. Cost changes reach them only when those contracts are renewed.
Inventory adds further delay, since goods on shelves were purchased at older prices. A cost increase can take a full stock cycle to appear.
The same lag applies in reverse. Falling import costs reach consumers slowly, which is a frequent source of complaint.
How competition determines the pass-through
In a competitive category, a retailer raising prices ahead of rivals loses volume. Cost increases are absorbed in margin until the whole market moves.
Where few suppliers exist or switching is difficult, pass-through is faster and more complete. Category structure predicts the speed better than the size of the cost change.
Reformulation and shrinking pack sizes are alternatives to a price increase. The cost is passed through without appearing in the shelf price.
What this means for a household budget
Categories with high imported content respond first and most visibly, which is why fuel and electronics move before groceries. Services barely respond at all.
A household's exposure therefore depends on its own spending mix rather than on the national import figure. Two households in the same city can experience quite different inflation.
Tracking the categories that dominate a specific budget is more informative than following an aggregate index. The aggregate averages across baskets nobody actually buys.