Boston Fed Study: Tariffs' Inflationary Impact Limited by Productivity Gains

The Federal Reserve Bank of Boston has published research that challenges the conventional wisdom on the impact of tariffs on inflation. The study found that industries hit hardest by tariffs in 2025 experienced faster productivity growth, which offset nearly two-thirds of the price pressure caused by rising import costs.

The researchers analyzed data from 63 industries and found that 37 showed productivity gains. They estimate that economy-wide productivity improvements lowered corporate production costs by approximately 1.3% and reduced core Personal Consumption Expenditures (PCE) inflation by roughly 0.9 percentage points.

However, when accounting for the full impact of tariffs on directly imported goods as well as goods produced in the US using imported components and raw materials, the study estimates that tariffs pushed core PCE inflation up by approximately 1.4 percentage points. Nevertheless, after incorporating the offsetting effect of corporate productivity gains, the net impact of tariffs on core PCE inflation shrinks to roughly 0.5 percentage points.

The research suggests that companies can absorb part of the cost pressure through efficiency gains when facing rising costs. The study also found that industries more heavily affected by tariffs tended to show more pronounced productivity growth.