The Effects of Tariffs on the Components of Inflation
The imposition of tariffs can have a complex effect on inflation, with initial declines in energy prices and later increases in goods and services inflation. Analyzing data from advanced economies, researchers found that tariffs can lead to a negative demand shock, causing inflation to fall initially, but then rise above pre-tariff levels over time.
The United States introduced wide-ranging import tariffs in early 2025, sparking uncertainty about their economic impact. Research using international data shows that tariffs can lead to a decline in inflation, driven by decreased demand and lower energy prices. However, inflation gradually increases, driven by goods and services inflation. The effects of tariffs on different inflation categories are complex, with energy prices initially declining and then returning to historical averages. Goods inflation remains unchanged initially, but then increases, while services inflation responds more slowly and persists longer.
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