Consumer Prices Still Show Few Signs of Tarifflation
Once again, the consumer price index (CPI) has failed to deliver the tariff-inflation spiral that economists and the media have promised. For years, we’ve been told tariffs are simply taxes on consumers, destined to push up the cost of everything from t-shirts to televisions. August’s report adds to the mounting evidence that this was always a scare story, not economic reality.
Headline inflation accelerated last month, with the all-items index climbing 0.4 percent after a 0.2 percent increase in July. The annual rate ticked up to 2.9 percent. But the sources of that pressure are clear: shelter, food, and energy. These are domestic categories with little to do with tariffs. What is conspicuously absent is any sign that duties on imports are driving broad-based price increases.
Look at the heart of the matter: core goods. Excluding volatile vehicles, prices in this category rose just 0.13 percent in August. That’s an annualized pace of 1.6 percent, the weakest in several months. CNBC’s Sara Eisen captured it plainly: “Still no big alarming sign of tariff induced inflation… in fact goods prices increases are decelerating. Core goods ex vehicles up 0.13% this month. In June those goods prices were rising 0.55%.”
Core Goods Show Continued Deceleration
Neil Dutta of Renaissance Macro drove the point home: “Core goods CPI less cars rose just 0.13% in August, or 1.6% SAAR, the weakest pace in several months. This lends support to the notion that tariffs largely are a one-time shock to the price level. Less pressure in August from household furnishings and recreation commodities.”
That one-time shock, such as it is, looks remarkably small. And it is being offset by outright declines in some import-heavy categories. Household furnishings barely moved last month, while recreation commodities fell. Electronics, apparel, and home goods — the very sectors economists warned would show the worst pass-through — simply are not registering significant inflation. The broad measure of commodities less food and energy is up just 1.5 percent over the past year, less than half the 3.6 percent rise in services.
Meanwhile, inflation continues to concentrate in areas untouched by tariffs. Shelter costs rose another four-tenths of a percent in August, extending their run as the single largest source of upward pressure. Airline fares spiked 5.9 percent in a single month after rising four percent in July. Electricity bills are up more than six percent compared to a year ago, while natural gas has soared nearly 14 percent. None of this has anything to do with tariffs. These are domestic problems: housing shortages, utility regulation, service-sector bottlenecks.
The picture that emerges is very different from the textbook models economists have relied on to predict tariff-led inflation. Businesses appear to be absorbing tariffs in their margins, turning to alternative suppliers, or using existing inventories to shield consumers. Competitive pressure in consumer markets has also limited their ability to pass along higher costs. Far from hitting households directly, tariffs are being digested by importers and foreign producers.
Inflation Concentrates in Domestic Sectors
This is not to say inflation is under control. At 2.9 percent, it remains above the Federal Reserve’s target. But blaming tariffs for today’s price pressures is a dodge. The Fed cannot lower rents by removing duties on Chinese imports. It cannot lower natural gas bills by cutting tariffs on imported cars. The real inflation challenge is domestic.
The tariff-inflation myth has always been about politics. It was designed to protect the decades-old status quo of offshoring and dependency by frightening voters with the prospect of higher prices. Yet time and again, the data tell a different story. Inflation in the United States is being driven by rents, utilities, and services, not tariffs.
August’s CPI confirms it—as did the producer price index released on Wednesday. Goods inflation is slowing, not accelerating. Mainstream voices like Eisen and Renaissance Macro now admit the obvious: tariffs are not pushing consumer prices higher. The “tariff tax on households” line was always an error, at best, and often a straight out lie told for political reasons. The real burden of tariffs has fallen on foreign producers and importers, not American families.
The CPI is telling us what the alarmists won’t: tariffs are not the villain. Inflation is homegrown, rooted in housing and services. The scare stories were wrong.
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