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
On March 30, 2026, I cautioned Powell Warns the Markets and Trump that His Patience with Inflation Has Limits
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?
Hmmm now we believe the FED? I thought they had no clue to what was going on!
Mish – no, the damage has not played out – it is forever baked in now.
The working class tax but at least the billionaires got a tax break
What this really highlights for me isn’t just tariffs or even taxes—it’s what happens when money shifts from the private sector to the public sector.
At a basic level, taxes (including tariffs) pull purchasing power out of private hands. That can be inflationary in specific categories if costs get passed through, like we see here with goods. But the bigger question is what happens after that transfer.
Real GDP impact isn’t determined just by the tax itself—it’s determined by how efficiently that money gets redeployed.
If the government spends those funds on productive investment (infrastructure, supply chain capacity, energy, etc.), you can offset—or even outweigh—the drag from the initial tax. If it goes toward low-multiplier or purely redistributive uses, you’re more likely to see a net drag on real output.
Tariffs in this case look like a pretty clean example of cost pass-through. But whether they were a net negative or not depends a lot more on what was done with the revenue than the tax itself.
The problem is the short-term dynamics tend to dominate the conversation. Consumers feel the price increases immediately, and the Fed responds to that inflation signal in real time. That reaction function—rates, financial conditions, demand cooling—ends up driving the political narrative.
Meanwhile, any potential long-term upside from how the money is actually spent (especially if it’s directed toward high-multiplier uses) plays out slowly and is much harder to attribute. By the time those effects show up, the narrative is already set.
So the politics get driven by the near-term pain and the Fed’s response to it, while the longer-term outcomes—good or bad—mostly get drowned out.
Good comments. Thanks
https://www.youtube.com/watch?v=LYP1176BJRU
“This is Getting INSANE! Electric Bills SURPASSING House Payments”
Furthermore, and this is universally acknowledged, not just in the US, the official inflation rate is well below the real rate experienced by most people.
Another fictitious economic parameter is the price of oil. This is the price of futures contracts, the result of financial manipulation by organizations or billionaires (with political objectives?) seeking to reduce anxiety about the crisis. The price of oil actually purchased would be much higher.
You can buy a CLZ26 barrel (December) for just under $77 this morning. Extreme backwardation.
Since Dec 3rd the Feds balance sheet has abruptly reversed QT and gone up over $160 billion. The last two weeks have seen the injection of $36 billion as stealth QE accelerates.
Increasing the money supply pretty much defines inflation. It’s here and happening!
The rising stock & housing markets are also inflationary ~ until they aren’t.
Whatever happened to those projected $11-12k increases in auto prices that were being touted last year ????
New vehicles now sell for an average of nearly $50,000
https://www.pbs.org/newshour/economy/new-vehicles-now-sell-for-an-average-of-nearly-50000
They sold for a lot more than $39-40k last year.
About 11-12K more, it seems
You just can’t have such a big debt without inflation.Inflation lowers debt value(real rates are negative).
If you have high inflation,you can raise the rates,only because real rates are deeply negative.
This is the game governments are playing.
Mish, you are using “inflation” as price increases, even though you have for years argued that inflation is an increase in the credit/money supply.
You likewise call the Trump tariffs “reciprocal” even though they are not reciprocal in the relational sense, nor in any mathematical sense.
It might be purism, but using terms exactly has advantages.
Adhering to the correct definition certainly helps those of us in the know explain to the layman just exactly WHO is responsible.
That’s because “inflation is an increase in the credit/money supply” was never correct. Inflation is an increase in the hypothetical price level (of all goods consumed in total).
An increased credit/money supply can cause inflation to be sure. But that is not inflation, per se. Thus, why the Iranian war oil shock is causing inflation now as well, even though credit/money supply is not increasing.
Is anyone else keeping an eye on Japanese bonds and getting giddy? oh the profits when the carry trade unwinds! (for the well positioned investor).
https://blocknow.com/japan-bond-yields-29-year-high-oil-boj-rate-hike/
If and when it happens, we’re going to have total chaos and mayhem.
Meanwhile, US warehouses are starting to BURN.
Saw a funny meme with Smokey the Bear: Only Livable Wages Can Stop Warehouse Fires!
I warned there would be increasing violence in America as economic conditions deteriorated under Trump. It would be 10x worse if his ICE gestapo hadn’t been put on ICE (pun intended).
“Those who make peaceful revolution impossible make violent revolution inevitable.” — John F. Kennedy
Ireland just had massive protests about the rise in diesel prices. The government just announced a $500 million relief program as a result.
They don’t protest in the U.S. anymore. No anti-war protests of any significance. Gas will reach $6 a gallon this summer but the American sheeple will just pay up obediently.
In the U.S. they protest on “issues” not economics, even though economics are the root problem, as in the 1992 L.A. riots. The Rodney King verdict set off what was already brewing.
Tariffs are just taxes in disguise. The government adds the tariff, but consumers eat the cost through higher prices
True. Not disguised very well.
But very arbitrary taxes with unfair impacts and no effective policy goals.
Plenty of conservative deniers of economic facts disagree
Tariffs are a working class tax to support the billionaire tax cuts
These empirical passthrough effects of tariffs have been known in economics for decades. It took an economically illiterate real estate developer from New York to confirm them resoundingly, and imposing misery on the American economy, especially on low-income consumers and small businesses. But why would „MAGA Jesus“ Trump care about those little guys?
We imposed misery on ourselves the moment the Berlin Wall fell. The “peace dividend” was spent on strengthening China’s manufacturing base while significantly eroding western defense capabilities to design and manufacture equipment.
Those are all valid points. But putting tariffs on manufacturing imports is most likely the most stupid way of trying to counter China‘s growing manufacturing prowess.
Berlin Wall or Great Wall of China?
Berlin is pretty far from anything Chinese.
‘Definitely a Sham’: As Tariffs Climb, Trade Fraud and Accounting Tricks ProliferateU.S. imports from China have shrunk drastically. But billions of dollars of the change appear to be the result of accounting gimmicks and outright fraud.
‘Definitely a Sham’: As Tariffs Climb, Trade Fraud and Accounting Tricks Proliferate – The New York Times
My sister-in-law is a US customs auditor with 5 years til retirement. She’s been employed by TWO of these clown administrations now and believe me when I say she is clean out of fucks to give about detecting and prosecuting customs fraud, whether she gets paid or not. I’m certain that sentiment is endemic now, it’s an import-export free-for-all now.
in other shipping news…
China has issued a direct warning to the United States in response to Trump’s threat to blockade the Strait of Hormuz.
Chinese Defense Minister Admiral Dong Jun: “We have trade and energy agreements with Iran; we expect others not to interfere in our affairs. The Strait of Hormuz is open to us.”
What would Trump do if China defended its interests after watching Trump deplete our military resources attacking Iran? For instance, if China released 60,000 drones in 30 waves of 2,000 that attack all of our ships and military bases in the Middle East.
Simultaneously, waves of a thousand heavy payload drones for Israel to swat at.
I can’t imagine that any of our allies that he threatened or offended would step up to help…
The blockade is an act of war.
Not the first.
Transgression of International Law and of Maritime Conventions.
Would you accept your neighbor blocking you into your own driveway by parking across the entry ?
The consumer gets the worst of both worlds,
They get to pay the tariff when it is passed through by the importer, and the importer gets the tariff refunded; leaving the consumer looking over a wall of inflation with more from Trumps war coming directly at them.
Who does Trump work for?
And the tariffs will be paid back to the importers ~ resulting in the government refunding all of the revenue it received. Plus our international reputation has been damaged as credible trading partners.
Trump costs Americans at every turn…
Zero gains for the average American, only more costs, debt and stress.
And today Trump— deliberately adds to the spiralling cost of Fuel –to every consumer on the Planet—– Announcing shipments of Oil Tankers from Iran are now to be blocked by the American Navy says Trump? But that Irainian Oil had been going to India and China. Is the Donald now pulling India into the War also ? Donald is now deliberately pushing up Global Oil prices while he creates even more enemies ? What a Plan?
Price is a rationing mechanism.
For those with the least purchasing power, it means getting nothing.
And in many cases that means starvation (80% of food depends on artificial fertilizer).
I would willing to bet that the actual number is higher. Thank you taco.
The FedReserve is looking for excuses to raise rates instead of taking responsibility for 5 years of allowing inflation to remain above target. And now they’ve found one. Get set for steep rate hikes
That’s what the ample reserves framework is all about – an accommodative stance. If the FED were tight, interbank rates would be moving.
Trump replaces one set of tariffs for another AND blows 20% of global oil and inflation explodes when…
Trump was going to lower rates – 10 Year at 4.3% and 30 year mortgage at 6.40%
Trump was going to lower gas prices – Diesel at $5.65 and rising, regular $4+ and rising
Trump was going to lower housing – Median cost $405,300
Trump was going to bring back manufacturing – oil prices surging making everything cost prohibitive.
Trump was going to end all wars – started conflicts everywhere.
Trump was going to make America First but has made Israel first every time.
You still have 1013 days of more evil demonic insanity so…..
Do worry, Trump will find a way to make things even worse.™
oh and South Korea seems to hate Israel now. I suspect the list of countries only grows from here….
https://www.youtube.com/watch?v=awyJ36zcraY
“Trump was going to make America First but has made Israel first every time”
In case there was any doubt about who Trump reports to: https://www.yahoo.com/news/articles/netanyahu-reveals-trump-reports-him-155230481.html
You are talking treason and death penalty.
Which he has coming to him anyways, as a war criminal.
Hard to know if Israel has his nuts in a vice; doesn’t seem like Zionist convictions or convictions of any kind would guide him. But he is so ignorant that is it impossible to conclude anything about his considerations.