Imported Goods Prices Decline, Defying Tariff-Driven Inflation Concerns: CEA Report

New economic analysis from the Council of Economic Advisors (CEA) challenges prevailing assumptions regarding the inflationary impact of trade policies, revealing a distinct trend where imported goods prices have decreased more rapidly than overall goods prices. This finding, derived from an agency within the Executive Office of the President, offers a counter-narrative to concerns that the tariffs implemented by the administration of President Donald Trump might inevitably lead to broad inflationary pressures.

• The Council of Economic Advisors (CEA) published new analysis challenging the inflationary impact of trade tariffs.
• Imported goods prices have decreased more rapidly than overall goods prices, counter to expectations.
• The analysis utilized both the Personal Consumption Expenditure (PCE) Price Index and the Consumer Price Index (CPI) data.
• From December through May, PCE imported goods prices declined by 0.1% while overall PCE goods prices increased by 0.4%.
• A similar divergence was observed in CPI data, with imported goods prices decreasing by 0.8% and overall goods prices remaining flat.
• The report concluded that tariffs have not diminished the disinflationary impulse from imported goods as of May.

Methodology and Scope of Analysis

The CEA report meticulously dissects two critical inflation gauges: the Personal Consumption Expenditure (PCE) Price Index, which is closely monitored by the Federal Reserve and financial markets, and the Consumer Price Index (CPI), widely utilized by the public. For both indices, the analysis segregated price movements into their respective imported and domestic components to provide a granular understanding of price dynamics. The analysis specifically focused on the December-May timeframe to capture the effects of the current administration’s policies.

Diverging Trends in Personal Consumption Expenditure (PCE)

Examining data from December through May, the report indicates that while overall goods prices within the PCE index saw a modest increase of 0.4%—corresponding to a 1% annualized rate—the imported component of PCE goods prices actually declined by 0.1% during the same period. This observed divergence was consistent across various categories, including core goods (excluding food and energy), durables (items lasting at least three years), and nondurables, suggesting a broad-based trend. The CEA highlighted that the import contribution to inflation encompasses both the direct impact of imported final consumer goods and the indirect effects from imported intermediate inputs. Cumulatively, overall PCE prices increased by approximately 1.1% since December, compared to about a 0.2% rise for PCE import prices.

Consistent Patterns in Consumer Price Index (CPI)

A similar pattern emerged from the analysis of CPI data. Imported goods prices registered a decrease of 0.8%, while overall goods prices remained flat. The report emphasized that finding a consistent pattern across both PCE and CPI, despite their inherent differences in scope and weighting methodologies, underscores the robustness of these results.

Broader Economic Implications and Observations

The report noted a clear trend of imported component prices declining since March, even as overall prices remained relatively unchanged or showed slight increases. The CEA acknowledges that this divergence could be partly attributed to services pricing, which tends to have lower import intensity and can exhibit stickier price trends. While the CEA’s analysis does not identify a theoretical “counterfactual” scenario where tariffs were not instituted, the report concludes that there has been no clear trend break observed this year. The consistent divergence of goods and imported goods prices, which began towards the end of 2023 and has continued, suggests that the tariffs have not, as of May, diminished the disinflationary impulse originating from imported goods.