GeopoliticsMarket noteThursday 8 October 2026, 23:15
Tariffs and inflation: goods prices would have fallen without them
Tariffs and inflation: NY Fed economists find tariffs added 2.9 points to US goods inflation at the peak. Without them, goods prices would have fallen slightly.
By The Notebook Desk
Tariffs explain all of the rise in US goods inflation since late 2024, according to new research on tariffs and inflation from the Federal Reserve Bank of New York. By February 2026, tariffs had added 2.9 percentage points to the yearly rise in US consumer goods prices. Without them, goods prices would have fallen slightly.
That is the finding of Mary Amiti and Sebastian Heise of the New York Fed and David Weinstein of Columbia University, in a Liberty Street Economics post on 6 October. They also find that the effect on inflation has already peaked. The effect on prices has not gone away: tariffs have left goods prices higher.
How a tariff reaches the shelf
The economists follow a tariff through three steps. First, the border. Foreign exporters cut their prices very little, so nearly 90% of the 2025 tariffs passed through to US import prices. The effect is immediate: import prices rise almost one for one in the first month.
Second, the factory. Tariffs also raise the prices of goods made in the US, in two ways. Many US producers use imported parts and materials, so their costs go up; a tariff on steel makes a car built in the US dearer. And when imports cost more, US producers of competing goods face less pressure to keep their own prices down. Both happened, the authors find, and the cost effect was the larger. This step is slow: US producer prices rise only a little in the first six months, then the effect roughly doubles over the next six.
Third, the shop. Transport, wholesale and retail margins make up about half of what consumers pay for goods, and a tariff does not raise them in step. A 10% rise in import and producer prices caused by tariffs lifts retail prices by 5.6%.
Put together, a 10% tariff on all imports would leave consumer goods prices 2.6% higher after a year: about a quarter of the tariff. Two-thirds of that comes from imported goods, and one-third from goods made in the US.
What the 2025 tariffs did to prices
Goods inflation was close to its slightly negative pre-pandemic average for most of 2024, the authors write. It started to edge up late that year and picked up through 2025. Their estimates put all of that rise down to tariffs. At the peak, in February 2026, tariffs had raised the level of consumer goods prices by close to 3%.
There are limits to the finding. The sample covers 67 categories of goods, leaving out oil and leaving out services, which make up about two-thirds of what consumers buy. The method compares goods that were more exposed to tariffs with goods that were less exposed, so it cannot say how much of the wider movement in prices the tariffs also caused.
Why the effect on inflation is fading
The tariffs were cut early this year. A Supreme Court ruling ended the tariffs imposed under emergency powers, and a lower 10% surcharge replaced them. Importers are now claiming refunds, as we reported on 8 October in the case of Levi Strauss.
The authors expect the tariff effect on the goods price level to ease to about 2% by August 2026, and then to edge up again. About half of that rise comes from tariffs on Canadian goods imposed in August, which are still passing through. The rest comes from a rise in tariffs on Canadian cars, trucks and car parts announced for January 2027.
For inflation, the yearly rate, the picture is clearer. The tariff contribution falls to around zero by August 2026 and then turns negative, as the big tariff rises of 2025 drop out of the comparison with a year earlier. It turns slightly positive again by mid-2027.
What the official figures show
The official data fit that pattern. Prices of goods other than food and energy were 0.7% higher in August than a year earlier, by our calculation from Bureau of Labor Statistics data. That is down from 1.5% in August 2025, and up from a fall of 1.9% in August 2024. It is a wider measure than the authors’ sample, but the turn is the same.
| Aug 2024 | −1.9% |
|---|---|
| Feb 2025 | −0.1% |
| Aug 2025 | +1.5% |
| Feb 2026 | +1% |
| Aug 2026 | +0.7% |
Source: US Bureau of Labor Statistics, CPI commodities less food and energy commodities (CUUR0000SACL1E), not seasonally adjusted, via FRED; our calculation.The Macro Notebook
Overall inflation has gone the other way. All consumer prices rose 3.4% in the year to August, up from 2.9% a year earlier, on the BLS index. Energy prices were 16.3% higher than a year earlier.
What to watch next
The September consumer price figures are the next test of whether goods inflation keeps easing while energy pushes the headline rate up. The Federal Reserve’s next policy meeting is on 27–28 October. And in January 2027, the higher tariffs on Canadian vehicles and parts are due to take effect.
The research gives the Fed a reason for comfort and a reason for care. Tariffs on their own should stop adding to goods inflation. But they do so slowly, through prices of goods made at home as well as abroad, and a new round of tariffs starts the clock again.
Disclosure
This is analysis and opinion, not investment advice.