Consumer Prices Show Few Signs of Tariff Impact
It seems that the Consumer Price Index (CPI) is, once again, not showing the expected inflation due to tariffs that economists and the media have often warned about. For years, we’ve heard that tariffs are merely taxes on consumers, designed to drive up costs on everyday items, from t-shirts to televisions. However, the August report suggests this might not be the case—more a tale than a reflection of economic reality.
In August, overall inflation rates increased by 0.4%, following a 0.2% rise in July. The annual inflation rate peaked at 2.9%. Yet, the factors causing this hike are clear: shelter, food, and energy. These categories primarily stem from domestic issues rather than customs duties. There’s a marked absence of evidence suggesting that imports are fueling significant price hikes.
If we turn our attention to core products—those less susceptible to volatility, like vehicles—prices in this category inched up by just 0.13% in August. This translates to an annual rate of 1.6%, the weakest growth in several months. CNBC’s Sara Eisen noted that there are still no surprising signals of inflation from tariffs. In fact, commodity price increases are decelerating, and core products only went up by 0.13% this month.
Core Goods Reflect Continuous Slowdown
Neil Dutta from Renaissance Macro highlighted that “Core Goods CPI, excluding cars, rose by just 0.13% in August, the slowest pace in months, at an annualized rate of 1.6%. This reinforces the idea that tariffs are merely short-term shocks to price levels.”
This short-term shock appears minimal, particularly as some imported categories actually decreased. For instance, home furniture showed little change last month, while leisure items have taken a hit. Surprisingly, electronics, apparel, and household goods—the very sectors that economists feared would see significant inflation—are not displaying major price increases. The overall rise in food and low-energy products stands at just 1.5% over the past year, which is actually less than half of the 3.6% growth seen in services.
Moreover, inflation is firmly rooted in areas that aren’t influenced by tariffs. Shelter costs increased by another 4.4% in August, further solidifying their role as a major factor in overall inflation. Airline fares surged by 5.9% in one month, following a 4% increase in July. Electricity costs have risen by over 6% compared to last year, while natural gas prices have jumped nearly 14%. None of this is tied to customs duties; rather, they stem from domestic challenges like housing shortages, utility regulations, and bottlenecks in service sectors.
The emerging data diverges significantly from traditional economic models that predict tariff-driven inflation. Companies seem to be absorbing the costs associated with tariffs, looking for alternative suppliers, and using current inventories to shield consumers from price hikes. The competitive pressure in the consumer market limits the ability to pass on these higher costs—a clear indication that tariffs are being absorbed by importers and foreign producers, not consumers.
Domestic Factors Drive Inflation
This, however, doesn’t imply that inflation is in check. At 2.9%, it surpasses the Federal Reserve’s target. But attributing current price pressures to tariffs misses the mark. The Fed won’t be able to lower rental costs by lifting import duties on Chinese goods. Reducing tariffs on imported vehicles won’t impact natural gas prices. The underlying issue for inflation lies within the domestic sphere.
The narrative around tariffs has always been fueled by political motivations, seeking to protect jobs from years ago amid fears of offshoring and dependency, warning voters of rising prices. Yet, the data consistently tells a different story: U.S. inflation is driven by factors like rent, energy costs, and services rather than tariffs.
The August CPI supports this idea, as does the producer price index released recently. Product inflation is slowing rather than accelerating. Mainstream commentators, like Eisen and those at Renaissance Macro, acknowledge this reality: tariffs do not drive up consumer prices. The notion of tariffs as a “tax on households” has often turned out to be misleading or politically motivated. The true burden of tariffs falls primarily on foreign producers and importers, not on American families.
Ultimately, the CPI reveals what many overlook: tariffs are not the villains here. Inflation has domestic origins, tied deeply to housing and services. The alarming tales surrounding tariffs have consistently proved inaccurate.
