Inflation's Grip: How Tariffs and Supply Chains Shape the Markets in 2025

Without going into detail on every sector in the MSCI World Index, here is a quick breakdown of a few potential winners and losers facing a “sticky situation”:

Consumer Staples:  People need food, beverages and household goods – items that you simply “can’t live without” and will pay up for it.  Consumers may get pickier at the supermarket, choosing off-brand alternatives or substituting pricey beef for cheaper chicken. But typically, consumers stick with what they know.  Consumer staples companies that tread carefully can end up as the big winners – raising prices gradually without huge demand loss, but doing so on pace with cost increases to avoid the margin squeeze. 

U.S.-based Tyson Foods is seeing this shift firsthand with healthy demand for chicken. For a while there was a big push for alternative proteins like Beyond Meat (not a Polaris holding) and similar, however we continue to believe chicken is a cost effective way for people to consume protein.  Dutch coffee/tea purveyor JDE Peet’s has performed well, as people won’t forgo their morning caffeine fix despite higher prices.  Other more discretionary food items like chocolate (Switzerland’s Barry Callebaut) haven’t fared as well.

Health Care: Health care costs have continued to rise post COVID-19 on the back of labor shortages, drug cost inflation, complex cancer treatments and the like.  To offset these expenses, health insurance providers are repricing premiums – which in turn creates its own inflationary spiral that feeds into overall CPI calculations and contributes to persistent inflation pressures.  

It is a tough operating environment for health insurers in the U.S.  UnitedHealth Group announced premium increases throughout 2025, while cost containment pressures drive them to seek innovative contracting models with hospitals and pharmaceutical firms. CVS Health Corp., through its insurance arm Aetna and national pharmacy network, has also navigated mounting cost and demand pressures by expanding access to generic drugs and integrated care services, seeking to offset upward cost trends for consumers. As two of the largest U.S. players, their operational responses and pricing strategies play a critical role in shaping insurance costs and healthcare inflation throughout the broader economy.

Conversely, pharmaceutical companies have seamlessly navigated – raising drug prices on hundreds of brand-name and orphan drugs, outpacing inflation.  Pharma companies contend that such upcharges are necessary to keep pace with inflation, but also to reinvest cash flows back into R&D to build out pipelines of life-saving drugs.  Adding in tariffs on medicine produced outside of the U.S. only increases the outlook for sticky inflation. Look at French pharma Sanofi, with its fleet of asthma, COPD and myeloma and prostate cancer protocols, or consider Ireland-based Jazz Pharmaceuticals’ Xyrem for narcolepsy and idiopathic hypersomnia. 

Consumer Discretionary: In the simplest of terms: higher prices squeeze consumers, reducing non-essential spending.  Let’s take this in a microcosm: Used vehicle prices surged during COVID-19 due to supply chain disruptions and semiconductor shortages within new vehicle production, while new vehicle costs also climbed sharply due to increased labor negotiations as well as inflationary pressures on the commodity cost side.

This price inflation extended beyond the vehicles themselves—auto repair costs have risen substantially as replacement parts became more expensive, with 60% of parts being imported and now subject to tariffs. Motor vehicle insurance rates have increased dramatically, rising 5.3% annually as of July 2025, driven by higher vehicle values, more expensive repairs, and climate-related claims. This creates a vicious cycle: as repair costs and insurance premiums climb, many consumers choose not to repair their vehicles as it is just too expensive. There are also an increased number of total loss vehicles as the total cost to repair a damaged vehicle exceeds its estimated value, and therefore insurance companies are more likely to declare “total losses”. 

Companies like U.S-based LKQ Corporation, which specializes in recycled and aftermarket auto parts, benefit from this trend as cost-conscious consumers seek alternatives to expensive OEM parts; however since people are repairing their cars less they are experiencing a cyclical downturn.

Utilities: As regulated monopolies, most utilities can’t freely pass increased costs on to its customers due to the “regulatory compact”. And even if they could, regulatory agencies may resist substantial rate hikes, especially during periods when inflation is already squeezing consumers. This constraint can compress margins and slow earnings growth.  Further compounding the pain: utilities are capital-intensive and often carry large amounts of debt to fund infrastructure projects. When rates rise, refinancing and new borrowing costs increase, directly pressuring earnings.  

However, utility demand will not abate as electricity is a basic need in homes and offices.  In fact, demand should ramp up with the added AI/data center needs from hyperscalers.  And when service contracts are up, utilities will renegotiate rates to include inflationary costs.