The tariff inflation shock starts to hit

Core goods inflation in the US is MUCH higher than it normally is at this time of year

One of the biggest puzzles out there is that US inflation remains muted, even though substantial tariffs have been imposed and the Dollar has fallen. I discussed three key reasons why inflation hasn’t risen in a recent post: (i) front-running delayed the initial hit from tariffs; (ii) transshipments from China to the US via Vietnam, Thailand and other places are big, so the supply of Chinese goods hasn’t fallen nearly as much as you’d think; and (iii) residual seasonality - a pesky issue that bedevils lots of data after COVID threw off seasonal adjustment factors - is making inflation currently look lower than it really is.

All that said, the tariff inflation shock looks like it really got going in yesterday’s CPI data for June. The top left chart shows monthly inflation for core goods, a category that makes up about 25 percent of the core CPI basket. The chart shows monthly inflation so far in 2025 (purple line), along with monthly inflation rates in 2024 (blue line) and 2023 (red line) as well as the median inflation rate throughout the calendar year for 20 years of data from 2000 to 2019. Monthly core goods inflation in June 2025 was around 80 bps above where it normally is at this time of year, which is substantial. This effect will keep building in intensity as pre-tariff inventories are depleted and as the administration cracks down on transshipments, as in the trade deal with Vietnam.

The additional charts show different components of the core goods category. Household furnishings and supplies got hit very hard (top right), as did recreational goods (bottom left). Even apparel (bottom right), where tariff front-running was especially pronounced, is seeing monthly inflation above where it normally is at this time of year. Overall, the tariff hit to goods prices is starting to hit in earnest, an effect that will continue to build in coming months.