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How do tariffs affect consumer prices in the US?
Executive Summary
Recent empirical work and policy analyses converge on the finding that the 2025 US tariffs raised consumer prices, with the largest effects concentrated in durable goods and sectors that directly compete with imports. Multiple studies quantify the contribution of tariffs to headline inflation at roughly 0.4–0.5 percentage points over mid‑2025 months and estimate broader short‑run consumer price increases up to about 1.1–1.3% when accounting for retaliation and spillovers; business surveys and tracking studies show faster pass‑through for imported goods and meaningful price responses in competing domestic categories [1] [2] [3].
1. Why tariffs show up on your receipt: empirical estimates of price pass‑through
Multiple analyses document measurable pass‑through from tariffs into consumer prices, especially for durable goods such as vehicles, electronics, and furniture. The Federal Reserve Bank of St. Louis reports a PCE‑weighted average price effect of roughly 0.87% for affected categories and attributes about 0.5 percentage points of headline PCE annualized inflation to tariff changes during June–August 2025, with similar magnitude for core PCE [1]. Independent tracking research finds imported goods’ retail prices rose about 5.4% relative to pre‑tariff trends and domestic goods in competing categories increased around 3%, indicating both direct import pass‑through and second‑round pricing effects where domestic producers raise prices in response to the new competitive environment [2]. These estimates consistently highlight sector concentration—metals, leather, apparel, and durable household items see the biggest effects.
2. How economists translate tariffs into headline inflation numbers
Researchers link tariff timing to movements in the Personal Consumption Expenditures (PCE) index to produce headline‑level attributions. The St. Louis Fed and allied studies align in estimating tariffs explain roughly 0.4–0.5 percentage points of headline PCE annualized inflation for the mid‑2025 window, using expenditure weights and observed price changes in affected goods [1]. Complementary macro work by The Budget Lab places broader short‑run effects higher—estimating a 1.3% rise in consumer prices when including foreign retaliation and equilibrium adjustments, and a long‑run effect near 1.1%, implying that simple pass‑through estimates understate economy‑wide impacts once trade retaliation and output effects are incorporated [3]. The divergence between narrow PCE attributions and larger modeled price changes highlights methodological differences: direct measurement of price changes versus counterfactual macro simulations.
3. Who bears the burden: consumers, businesses, or producers?
Survey evidence and price tracking suggest the tax is shared, but consumers ultimately absorb much of it through higher retail prices. A Boston Fed survey of small and medium firms documents that businesses significantly raised tariff expectations and, for those directly affected, paid nearly double the average tariff rate in July 2025 versus January 2025, implying squeezed margins and re‑pricing decisions [4]. The tracking study’s observed increases in domestic competing goods prices indicate firms respond by raising prices rather than fully absorbing tariffs, while the Budget Lab’s household‑level calculations convert price changes into per‑household income losses (roughly $1,800 in the short run), reinforcing that households face the real economic cost [4] [2] [3].
4. The political and analytical split: immediate evidence versus modeled long‑run costs
Public reporting and policy narratives differ in emphasis: news summaries highlight near‑term price increases for groceries and furniture and note uncertainty about product‑level effects, reflecting a cautious media framing [5]. Academic and policy studies press a firmer point: measured pass‑through is evident now, but modeled estimates that incorporate retaliation, GDP feedbacks, and supply‑chain adjustments predict larger aggregate and persistent costs to consumers and output. The Budget Lab’s simulation of retaliation-driven amplification and the St. Louis Fed’s empirical PCE attributions together show both immediate retail impacts and potential broader macroeconomic costs, underscoring why analysts and policymakers debate short‑term evidence versus long‑run equilibrium effects [5] [3] [1].
5. What’s missing from headlines and where to watch next
Current analyses are robust on mid‑2025 impacts but omit longer‑term compositional adjustments: firms may re‑source, automate, or relocate production, which could reduce price pressure over time and alter labor and investment outcomes. Available studies document early price pass‑through and model plausible macro spillovers, but the extent of durability in price effects depends on firms’ strategic responses, trade partners’ retaliation, and monetary policy reactions—factors not fully observed in short‑window PCE decompositions [2] [3]. Policymakers should monitor sectoral price indices, firm sourcing surveys, and subsequent quarters’ PCE data to determine whether the mid‑2025 tariff shock remains a temporary spike or a persistent upward shift in the US price level [1] [4].