By the seventh month, the tariff cost pass-through to consumers hits 100 percent.
Please consider the Fed study Detecting Tariff Effects on Consumer Prices in Real Time – Part II
Introduction
Major changes in U.S. trade policy last year have led to a surge of interest in the timely assessment of the economic effects of tariffs. Minton and Somale (2025) developed a methodology to detect tariff effects on consumer prices in real time that relies solely on publicly available data. Under this approach, the authors first construct theoretical predictions of tariffs’ effects on prices of individual personal consumption expenditure (PCE) categories—based on implemented tariff changes, the prevalence of tariffed imports in each category, and the assumption of full dollar-for-dollar pass-through from tariffs to prices—and then assess whether these theoretical effects align with observed changes in PCE prices. Minton and Somale (2025) found preliminary evidence that U.S. tariffs on China implemented early last year were already impacting consumer prices through March.
In this note, we build on Minton and Somale (2025) to assess consumer price effects of additional tariffs implemented in 2025. We confirm the authors’ preliminary findings that 2025’s tariffs have led to statistically significant increases in prices of consumer goods more exposed to tariffs. Our estimates indicate that tariff effects on prices gradually build over time, with cumulative effects seven months after implementation consistent with our theoretical measures of full dollar-for-dollar pass-through. We estimate that the tariffs implemented through November of 2025 have raised core goods PCE prices by 3.1 percent through February 2026, explaining the entirety of excess inflation in the core goods category relative to pre-pandemic inflation rates and contributing to a 0.8 percent boost in core PCE prices as a whole. Moreover, the data so far suggest that pass-through of these tariffs is effectively complete.
Dynamic Tariff Effects on Consumer Prices
We estimate our regression model with seven lags and report the cumulative pass-through estimates in Figure 3. The results are consistent with full dollar-for-dollar tariff pass-through into relative consumer prices seven months after a tariff change. Stated more intuitively, the results mean that if retailers’ acquisition costs for a good rise $1 because of tariffs, they charge $1 more for that good seven months later.
Given that the entire effect quantified above is driven by tariff effects on core goods PCE prices, and core goods represent about a quarter of overall core PCE, our tariff effects can equivalently be stated as boosting core goods PCE prices through February 2026 by 3.1%.
Conclusion
We find strong evidence that tariff changes in 2025 have raised core goods prices. Under our baseline estimates, tariff changes through November 2025 raised core goods PCE prices cumulatively by 3.1% through February 2026, explaining the entirety of excess inflation in the core goods category relative to pre-pandemic inflation rates and boosting core PCE prices as a whole by 0.8 percent. We also estimate that pass-through from the 2025 tariffs is effectively complete.
An important factor limiting further inflationary effects from the 2025 tariffs is the 10 percentage point reduction in tariffs on China implemented in November, which offsets a substantial portion of the tariff effects from the reciprocal tariffs implemented in August.
Of note, our analysis does not cover the effects of tariff changes that occurred due to the February 2026 Supreme Court ruling against the IEEPA tariffs.
We emphasize that one key benefit of our methodology is the ability to continue reassessing our estimates of tariff pass-through as we receive more data. With additional inflation data, we will gain more confidence about the long-run level of tariff pass-through and refine our estimates of how the effects of tariffs play out.
Good News and Bad News
The good news is the damage from reciprocal tariffs in terms of price inflation has played out.
The bad news is Trump replaced those tariffs with other tariffs that are likely to be more damaging. I will discuss this point further in a future post.
Moreover, the above article only address the inflation impact. It does not address the impact on small businesses, bankruptcies, the slowing of the economy, and job losses.
In addition, Trump set off a huge wave of inflation with the war in Iran. That war has an immediate impact on gasoline and diesel prices. Aluminum, helium, and fertilized prices have also soared.
The limited good news on tariff pass-through has already been negated five times over.
If the strait remains closed to most traffic, oil prices and other related goods will keep rising.
But hey, have you seen the DOW?
That’s what we should be talking about,” said Pam Bondi on her way out the door as Trump’s Attorney General.
Related Posts
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Powell’s speech was to Harvard students but read between the lines.
Powell’s warning was aimed straight at Trump.
April 10, 2026: March CPI a Blistering Hot 0.9 Percent Led by Gasoline Up 21 Percent
Inflation in March was a scorcher. Here are some month-over-month and year-over-year charts.
On April 10, 2026, I noted Consumer Sentiment Drops to Record Low in April, Consumers Blame the War
The war and resultant inflation is what forced capitulation by Trump.
April 11, 2026: US Intelligence Says China Will Soon Deliver Air Defense Systems to Iran
China denies that, but is the denial believable?
Article posted with permission from Mish Shedlock
