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Has tariffs causing increase in inflation
Executive summary
Multiple reputable analyses say tariffs implemented in 2025 have raised consumer prices and contributed a measurable share of recent inflation — the St. Louis Fed estimates tariffs explained about 10.9% of headline PCE inflation over the 12-months to August 2025 and roughly 0.5 percentage points of annualized PCE inflation in June–August 2025 [1]. Several private forecasters and banks put similar numbers in their models (J.P. Morgan +0.2–0.3 p.p. to PCE; UBS projects +0.8 p.p. to core PCE in 2026), while other academic Fed research finds tariff shocks can also depress demand and lower inflation in some historical episodes [2] [3] [4].
1. Tariffs pass through to consumer prices — and economists can quantify part of it
Empirical work and model-based estimates show firms have passed at least some tariff costs to U.S. consumers: the St. Louis Fed’s real-time model finds tariffs accounted for about 0.4–0.5 percentage points of core/headline annualized PCE inflation in mid‑2025 and about 10.9% of headline PCE year‑over‑year inflation through August [1]. Goldman, JP Morgan and other institutions reach comparable orders of magnitude in their forecasts — J.P. Morgan raised its 2025 PCE inflation outlook by roughly 0.2–0.3 percentage points because of tariff policy [2] [5].
2. Different studies disagree on the net macro effect — supply shock vs. demand shock
Some analyses treat tariffs as a direct increase in import prices that feed into consumer prices (Boston Fed, St. Louis Fed, UBS), implying an upward effect on measured inflation and on real‑income erosion for households [6] [1] [3]. By contrast, a San Francisco Fed working paper that studies 150 years of tariff episodes finds tariff hikes often reduce aggregate activity, raise unemployment and can lower inflation through a demand channel — meaning tariffs may ultimately suppress inflation after an initial price impact [4] [7]. Both channels appear in the literature and the relative size and timing of each determines whether tariffs raise persistent inflation.
3. Magnitude matters — the 2025 tariffs were unusually large
Several researchers emphasize the scale of 2025 measures. The Budget Lab at Yale and other groups note that 2025 tariff increases were far broader than the 2018 round, with an effective tariff‑rate rise of several percentage points and sizable potential to shift inflation forecasts and monetary policy decisions [8] [6]. UBS and the Tax Foundation quantify large fiscal and household impacts: UBS estimates a weighted‑average tariff rate rise to ~13.6% and a tariff “tax” equivalent to about 1.2% of GDP; the Tax Foundation projects per‑household cost increases in the hundreds to thousands of dollars depending on scenarios [3] [9].
4. Short-run vs. long-run effects — one‑time price level vs. persistent inflation
Policy briefs stress that first‑round effects (import‑price pass‑through) are easier to calculate than longer‑run dynamics that depend on wage responses, substitution, and monetary policy. The Boston Fed’s calculations show first‑round impacts can meaningfully raise core PCE in the short run — for example, a large China tariff scenario could add up to 2.2 percentage points to core inflation in their upper‑bound exercise — but they caveat that later adjustments could mitigate this [6]. Minneapolis Fed commentary highlights uncertainty about whether tariffs cause only a one‑time price level jump or more persistent inflation that should change Fed policy [10].
5. Real‑world signals: policy rollbacks and political statements
Political reactions and policy tinkering reflect concern over visible price effects: the administration scaled back tariffs on many food items in November amid public anxiety over grocery costs, a move Reuters reported as linked to growing concern that tariffs were “hiking costs on people” [11]. That rollback itself is evidence policymakers view tariffs as having at least an apparent near‑term cost to consumers.
6. What the data don’t settle — and what to watch next
Available sources do not provide a single definitive answer about how much of overall 2025–26 inflation will be permanently attributable to tariffs versus other drivers; long‑run outcomes depend on pass‑through rates, supply adjustments, and monetary policy responses [1] [4] [8]. Watch three indicators: [12] core PCE and CPI trends after tariff changes [1], [13] import price indices and retail price pass‑through measures (p1_s7 notes import price indices), and [14] Fed communications about whether tariff effects are being treated as transitory or persistent [10] [8].
Bottom line: multiple central‑bank and private analyses find tariffs in 2025 have already raised measured consumer prices by a nontrivial amount and likely increased near‑term inflation expectations and forecasts [1] [2] [3]. But long‑run macro impacts are debated: some rigorous historical work finds tariff shocks can ultimately lower inflation by weakening demand [4], so the persistence of tariff‑driven inflation remains an open empirical question [10].