Goodbye Tariffs – Fear of Inflation
The December Consumer Price Index (CPI) released by the U.S. Bureau of Labor Statistics indicates that the anticipated surge in prices due to tariffs has largely not occurred and is, in fact, behind us.
Everyday essentials excluding food and energy were unaffected by tariffs on imported industrial goods, showing no change in December. New vehicle prices remained stable, while used cars dropped by 1.1%. Additionally, home appliances experienced a 4.3% decrease during the same month. This contradicts the expectations of those who believed tariffs would lead to soaring prices.
For the entirety of the year, core goods inflation stayed at just 1.4%. Clothing, often thought to be vulnerable to tariffs because of its import reliance, saw only a 0.6% annual increase.
Now, what really drives America’s annual inflation rate of 2.7%? The overall data reveals a different narrative. Shelter costs, which make up 35.5% of the total index, increased by 3.2% annually. Meanwhile, services overall rose by 3.3%. The cost of dining out saw a 4.1% increase, and recreation services experienced a 4.0% rise, marking the most significant single-month increase since 1993. Notably, we do not rely on imports for recreational services.
The trend is clear. Services, comprising 64% of the CPI, rose by 3.3% year-on-year. In contrast, commodities, which account for only 36% of the index, experienced a mere 1.7% increase. This scenario contradicts the predictions made by tariff alarmists throughout 2025.
If tariffs were leading to widespread price hikes, we would expect an uptick in goods prices alongside a decrease in service inflation. Instead, we see either disinflation or outright deflation in goods. Service inflation persists for entirely different reasons.
The much-discussed tariff increase never really happened.
Data reveals what we’ve been noting all year: Businesses are absorbing tariff costs by narrowing their margins and working with suppliers instead of passing those costs onto consumers. Domestic manufacturers have faced more competitive pressure than using tariffs as a justification for raising prices. Foreign suppliers have lowered their prices to keep their market share.
This is hardly surprising to those familiar with market dynamics. Businesses thrive in a competitive landscape, and most can’t just jack up prices with the assumption that customers will pay. They adapt. They optimize. They negotiate. As price theory teaches, it’s not the retail price that adjusts to raw material costs; rather, raw material costs adjust to retail pricing.
The December CPI is particularly insightful as it captures the entirety of the tariff implementation cycle in 2025. If price adjustments were to occur, they should have been evident by year-end. Instead, core goods prices have remained nearly static and are still well below the Federal Reserve’s 2% inflation target.
This report also alleviates concerns that the November figures were distorted by a government shutdown, which was thought to suppress inflation artificially. What’s evident now is inflation is on a consistent downward trajectory.
This goes beyond merely settling a policy debate. Throughout 2025, mainstream economists predicted that tariffs could reignite inflation, compelling the Federal Reserve to maintain high-interest rates, which might lead us into a recession. Various economic publications and think tanks posited we were on the brink of an inflation crisis. Economic studies aligned with anti-tariff sentiments forecasted steep rises in consumer goods prices.
Yet, none of this came to fruition. Current inflation seems focused on services—largely unrelated to trade policy. Instead, it can be traced back primarily to missteps by the Fed and excessive spending by Democrats during the Biden administration, especially in the post-pandemic period.
December’s CPI data sheds light on a tariff inflation crisis that was more about elite anxiety than real economic conditions.
