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Posted on: May 13, 2019 at 15:59:30 CT

https://www.prosperousamerica.org/why_tariffs_are_not_raising_prices

Why Tariffs Are Not Raising Prices

December 04, 2018
By Jeff Ferry, CPA Research Director

It’s now eight months after the first set of Trump administration tariffs went into effect, and so far the much-feared economic costs of tariffs have yet to appear.

In most cases, consumers have not seen any increases in the pricesof goods containing tariffed products because the costs have been absorbed by producers in the supply chain; while in a few cases tariffs have led to price increases in consumer goods but sales of those goods have continued to be strong. In other words, higher prices have simply not impacted demand. The economy continues to grow at a robust rate.

Even before the tariffs went into effect, the Chicken Littles of the business world and the economics profession began predicting that tariffs would drive up inflation, cause a recession, and pretty much make the sky fall in. Yet the tariffed industries and their customers are growing and there is little sign of increased inflation. And oh yes, there are also some signs that tariffs are beginning to achieve their key objective of stimulating the replacement of China as a production site. I’ll return to that last point in a moment.

The latest government data shows overall consumer price inflation remains low. The key measure of inflation, often called core inflation, came in at just 2.1 percent (see Figure 1) in October, pretty much spot on target for the Federal Reserve as it manages the nation’s monetary policy. Figure 2 shows that the main upward pressure on inflation comes from energy and the rising cost of housing. Tariffs began to come into effect in March and have had no noticeable effect on the inflation picture.

The upward pressure on inflation is from oil-related products, such as gasoline, up 16 percent year-on-year. Products like automobiles or beer in cans show price increases below the rate of overall consumer inflation.