Tariffs and Consumer Prices Insights

Both Joel and New Deal democrat had commentaries on Angry Bear about Real GDP. Economist Claudia Sahm had an evaluation piece on the impact of the Federal Government labor reduction to the economy. No recession according to her analysis and just economic uncertainty. New Deal democrat suggests we should take the Atlanta Fed’s NowCast negative GDP determination seriously and more than just a few grains of salt. I think NDd is right.

With regard to tariffs on China (which already has US tariffs), Mexico, and Canada; I was curious as to how this may playout on product pricing. Will we see some serious price jumps? Probably . . . I fully expect the various suppliers who provide products impacted by the Trump tariffs on product, etc. will see an opportunity to increase pricing well beyond the impact of the tariffs.

This is part of the commentary as taken from the Atlanta Federal Reserve of Atlanta. Read on . . .

Tariffs and Consumer Prices Insights from newly matched consumption-trade micro data

Insights from newly matched consumption-trade micro data, Federal Reserve Bank of Atlanta and CEPR

Summary:

The Atlanta Fed evaluates the impact of various US tariff scenarios on consumer prices using novel micro level data linking imports to consumer expenditures.

Results indicate that an additional 10 percent tariff on Chinese imports, 25 percent tariffs on Canadian and Mexican imports, and 10 percent tariff on other countries could raise consumer prices on everyday retail purchases, such as food and beverage items and general merchandise, covering about a quarter of the total consumption basket, by 0.81 percent to 1.63 percent, assuming half to full pass-through.

Notably, tariffs on Canada and Mexico contribute approximately 45 percent of the total price effect. The results focus on direct effects of tariffs on a quarter of the total consumption basket, and the aggregate effect on the overall Consumer Price Index (CPI) further hinges on the price sensitivity of the excluded consumption categories, particularly transportation, services, energy, and housing.

Key findings:

• Consumer Price Increases: An additional 10 percent tariff on Chinese imports, 25 percent tariffs on Canadian and Mexican imports, and 10 percent tariffs on other countries could raise consumer prices on everyday retail purchases such as food and beverage items and general merchandise. The imposed tariffs cover about a quarter of the total consumption basket, by 0.81 percent to 1.63 percent. This assumes a half to full pass-through. The aggregate effect on the overall Consumer Price Index (CPI) further hinges on the price sensitivity of the remainder of the consumption basket.

• Reduced Dependence on China: The United States has decreased its reliance on Chinese imports since the last trade war (2018), mitigating some negative price impacts from new tariffs.

• Significant Impact from Canada and Mexico: Tariffs on Canada and Mexico account for half of the total projected price increases, reflecting the broader scope of current tariff scenarios.
  

The Federal Reserve Bank of Atlanta results focus on about a quarter of the total consumption basket as data excludes expenditure categories, such as transportation, energy, housing, and most services. The aggregate effect on the overall Consumer Price Index (CPI) further hinges on the price sensitivity of the excluded consumption categories, the estimation of which goes beyond the scope of this paper. Additionally, indirect effects of tariffs through input-output linkages are not accounted for.

Center Affiliation: Center for Quantitative Economic Research, Federal Reserve of Atlanta

GDPNow. Federal Reserve Bank of Atlanta