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By Nora Redmond

Dennis DeBusschere, of 22V Research, said now that many companies have already used tariff refunds to ease cost pressures, those higher costs will increasingly be handed down to consumers.

There are four reasons investors should start getting a little bit concerned about inflation, according to a financial research and strategy firm, and the end of tariff refunds, in particular, might become a real shock to investors.

Dennis DeBusschere, president and chief market strategist at 22V Research, told clients in a video posted Tuesday that one worry should be the continuing and expanding impact of the war in Iran on core inflation.

August's year-on-year personal consumption expenditures price index - which omits food and energy prices - showed inflation at 3%, while headline reached 3.4%, both considerably higher than the Federal Reserve's stated 2% target.

He added that it no longer appears as if constraints to the supply of oil are temporary as Washington and Tehran have yet to agree on a peace deal. The January Brent crude-oil contract (BRN00) was trading around $111 on Wednesday.

DeBusschere said another reason to be concerned is sustained artificial-intelligence-related pressure on electronic prices. Equity dilution among Big Tech companies is reducing the risk of a slowdown in AI capital expenditure - which means little chance of alleviation any time soon, he said.

Thirdly, the end of tariff refunds could prove shocking to some investors, DeBusschere said. After the Supreme Court struck down President Donald Trump's "Liberation Day" tariffs in February, the administration started issuing refunds in May.

These refunds provided a temporary relief from inflation for many companies over the summer, especially for retailers like Walmart (WMT) and Target (TGT), which explicitly said they were being used to ease cost pressures - that were also believed to be temporary, DeBusschere said. But electronic prices are currently still rising and the oil shock has yet to calm, he explained.

"So now these same companies don't have the tariff refunds to absorb the shock and are passing on the higher cost to consumers," DeBusschere said, adding that this could start to show up in PCE inflation data in the next couple of months.

And because of those three reasons for higher inflation, he outlined that the probability of firms resetting their annualized prices in January has also increased.

"People got used to this with the seasonally high inflation readings in January and February, and so we're setting up for another potential for that," DeBusschere said.

For 22V Research, this raises the likelihood of the Federal Reserve raising interest rates, with the firm expecting three hikes through 2027 if any of the possible highlighted surprises come to fruition.

The central bank is expected to hold rates later on Wednesday before raising them in December.

S&P 500 futures (ES00) edged up 0.1% while the yield on the 10-year Treasury yield BX:TMUBMUSD10Y rose back above 5%.

-Nora Redmond

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