Tariffs Keep U.S. Consumer Prices Elevated Despite Falling Inflation

New research from the Federal Reserve Bank of New York suggests that tariffs continue to leave a lasting impact on U.S. consumer prices, even as their contribution to inflation fades. Economists Mary Amiti, Sebastian Heise, and David E. Weinstein found that every 1 percentage-point increase in average tariffs raises consumer goods prices by about 0.25% after one year, with two-thirds of that increase coming directly from higher prices for imported goods.

The study, published in the Liberty Street Economics blog, highlights how tariffs are passed through to U.S. import prices at a rate of nearly 90%, with import prices rising almost one-for-one with tariff increases in the first month. The remaining impact comes through higher costs for U.S. producers, which face more expensive imported parts and materials. The domestic producer-price effect builds slowly, roughly doubling over six to twelve months following a tariff increase.

The pass-through effect is smaller at the retail level because consumer prices also include additional costs like transportation, wholesaling, and retailing. The researchers estimate that a 10% tariff-driven increase in import and producer prices lifts retail consumer prices by about 5.6%. A hypothetical 10% tariff on all imports would eventually raise consumer goods prices by about 2.6% after 12 months, with one-third of the increase coming indirectly through U.S.-made goods.

The research also found that tariffs contributed 2.9 percentage points to consumer goods price inflation by February 2026, peaking at nearly 3% before easing to around 2% by August 2026 as tariffs were reduced earlier in the year. The contribution to the 12-month inflation rate is forecast to fall to around zero by August before turning slightly positive later, as ongoing tariff changes continue to work through the economy.

Looking ahead, the New York Fed researchers emphasized that even as the tariff contribution to year-over-year goods inflation fades, tariffs can leave consumer prices permanently higher. Their forecast assumes tariffs remain at end-September 2026 levels, with a planned January 2027 increase on Canadian cars, trucks, and auto parts. The full impact of tariff changes can take about a year to materialize.