Imports Seeing a Decrease in Price Compared to Locally Made Products
The Council of Economic Advisers (CEA) has released an analysis that challenges claims of an acceleration in inflation due to tariffs or tariff-related fears. According to the CEA, the prices of imported goods have actually fallen this year, with the decline being observed throughout the year.
The decline in imported goods prices has been more pronounced than the decline in overall goods prices since February. This trend is consistent across core goods (excluding food and energy), durables, and nondurables in the Personal Consumption Expenditure Price Index (PCE) analysis.
The PCE, an inflation gauge closely watched by policymakers and financial markets, shows that the imported component of PCE goods prices fell by 0.1 percent from December 2024 through May 2025. In contrast, overall goods prices in the PCE index have increased by 0.4 percent from December 2024 through May 2025, equivalent to a 1 percent annualized rate.
The CEA's analysis involved decomposing the PCE into imported and domestic components. Similar analysis for the Consumer Price Index (CPI) shows that imported goods have deflated 0.8 percent while overall goods prices have remained constant.
The scope of products included and weighting methodologies differ between PCE and CPI inflation. However, the robustness of the findings is highlighted by the similar pattern observed in both PCE and CPI inflation.
The CEA's findings are based on an analysis of the prices of imported goods. Durable goods prices, many of which are imported and tariff-impacted, exhibited zigzag behavior with some downward moves. After a peak price spike during 2021–2022 fueled by pandemic and stimulus effects, durable goods prices partially unwound their increases by early 2024. Monthly prices for these goods moved unevenly, with some months showing no change or slight decreases, reflecting easing of supply-side bottlenecks and global price adjustments.
Overall import prices and PCE inflation trends show modest month-to-month inflation of around 0.2–0.3%, with annual growth at about 2.6–2.8% during the first half of 2025. While tariffs were linked to price pressures in some sectors, the overall inflation impact remained modest, suggesting countervailing factors took effect to limit import price growth.
Market expectations and Federal Reserve analysis recognize tariffs may cause some one-time price rises but not necessarily sustained inflation acceleration. Monetary policy tightening, improved global supply chains, and adjustments in import sourcing or pricing have likely helped restrain import price increases in the wider economy.
In summary, the falling or stable prices of imported goods in the PCE index through May 2025 reflect a complex interaction where tariff-induced cost increases were partly offset by easing supply chain constraints, market adjustments, and monetary policy effects, preventing the feared acceleration of inflation tied directly to tariffs. The CEA's findings suggest that tariffs may not be causing an increase in inflation.
- The decline in the imported component of food prices, being a part of overall goods prices, has also been observed in the Personal Consumption Expenditure Price Index (PCE) analysis.
- The analysis by the Council of Economic Advisers (CEA) indicates that while tariffs might have caused temporary spikes in prices in certain sectors, they may not be the primary drivers of an overall increase in inflation, including in various sectors of the business and finance world.
