Tariffs and Consumer Prices
” How Fast Do Tariffs Pass Through into Consumer Prices? “
There has been a lot of interest in how tariffs affect consumer prices (for example, Cavallo et al. 2021, 2025). In this post, we present results from our new research paper that estimates the effects of the 2025-26 tariffs on retail consumer prices. We find that for every percentage point increase in average tariffs, consumer goods prices increase by about a quarter of a percent after one year. Roughly two-thirds of the effect arises because tariffs raise the prices of imported consumer goods. The remaining third arises indirectly: tariffs increase the prices of goods made in the U.S. because producers pay more for imported parts and materials, and because producers raise their markups when competing imports cost more. The effects differ in their timing. Prices of imported goods respond quickly to tariffs, while prices of U.S.-made goods adjust over six to twelve months as higher costs move through the supply chain.
The Direct Effect: Tariffs Raise Import Prices Nearly One for One
A tariff raises the price a U.S. importer (which could be a firm or a consumer) pays for a foreign good, unless the foreign exporter cuts its price to absorb some of the cost. In a previous post, we found that foreign exporters lowered their prices very little, so that nearly 90 percent of the 2025 tariffs were passed through to U.S. import prices. We find the same result here using data through February 2026. The effect is immediate: import prices rise almost one for one with tariffs in the first month after a tariff is raised. Our conclusion is unchanged when we account for exchange-rate movements: the dollar depreciated over this period, which also raised import prices, but we still estimate a tariff pass-through of around 90 percent.
The Indirect Effect: Higher Domestic Producer Prices
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