US reciprocal tariffs not causing inflation: Economic Advisers Council
The findings contradict claims that the US administration's reciprocal tariffs or fears induced by such announcements would lead to a rise in inflation.
Prices of imported goods in the US have fallen this year and have declined faster than overall goods prices since February, a new report from the Council of Economic Advisers said. The findings contradict claims that the US reciprocal tariffs or fears induced by such announcements would lead to a rise in inflation. The report did not identify the counterfactual in which tariffs are not instituted.
The report breaks down the personal consumption expenditure (PCE) price index, an inflation gauge watched closely by the Federal Reserve and financial markets, and the consumer price index (CPI), an inflation gauge most commonly used by the public, into imported and domestic components.
While overall goods prices in the PCE index jumped by 0.4 per cent from December to May, corresponding to a 1-per cent annualised rate, the imported component of PCE goods prices dropped by 0.1 per cent during that same time period, the report said.
"CEA's directional findings using this method of analyzing the PCE are consistent across core goods (excluding food and energy), durables (which last for at least three years), and nondurables," the report noted. "The import contribution to inflation includes both the direct impact of imported final goods for consumption and indirect effects of imported intermediate inputs."
Similar analysis for the CPI showed that imported goods dipped 0.8 per cent while overall goods prices remained flat.
"The results clearly show the price of imported components declining, starting in March, while overall prices were close to unchanged or increased slightly," the report read.
"Cumulatively, overall PCE prices have increased by about 1.1 per cent since December compared to about 0.2 per cent for PCE import prices. However, those values include pricing for services, which tend to have lower import intensity, so the divergence could be due to stickier services prices," the report added.
The report did not identify the counterfactual in which tariffs are not instituted.
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