Tariff Effects on Inflation Stabilize in Recent Months

Since early 2025, tariffs have dominated U.S. trade policy, and they became an important driver of the persistent rise in consumer prices observed through mid-2025 and into early 2026. In an October 2025 On the Economy blog post, we examined how tariff increases on imports to the U.S. were beginning to show up in consumer prices—particularly in categories of durable goods like vehicles, electronics and furniture. In recent months, we’ve seen encouraging signs that the inflationary impact of tariffs may be stabilizing.This analysis preceded the imposition of Section 301 tariffs announced on July 23.

Effective Tariffs Declined in the First Half of 2026

A key development in tariffs’ contribution to inflation has been the decline in effective tariff rates, calculated as total tariff revenue divided by the value of all imports.The effective tariff rate measures what importers actually paid, on average, over a past period, relative to the value of imports. It differs from the rate posted in tariff schedules because of trade agreements, exemptions and other factors. After peaking at 11% in late 2025, effective tariffs have trended downward, with a more pronounced decline following the U.S. Supreme Court’s February 2026 decision on duties imposed under the International Emergency Economic Powers Act. (See the following figure.) As of May 2026, effective tariff rates had fallen to just below 7%.

This decline in effective tariff rates represents a significant shift from the escalating trade tensions of 2025. The downward trend is most closely related to actual rollbacks of tariffs and tariff rates due to the Supreme Court ruling and bilateral agreements reached with different trade partners, but it may also reflect a reorientation of trade flows toward lower-tariff products and countries or alternative strategies to avoid tariff-heavy imports. A decline in effective tariffs should help ease upward pressure on import costs and, ultimately, on consumer prices.

The Impact of Tariffs on Inflation Has Leveled

To understand how much of observed inflation can be attributed to tariffs, we calculated what inflation would have been without tariff effects. For this, we used the methodology outlined in our previous blog post and estimated the pass-through of tariffs to personal consumption expenditures (PCE) prices.

The figures below show the contribution of tariffs (dark blue) and other forces (light blue) to observed “excess inflation,” calculated as the actual PCE inflation rate minus the Federal Reserve’s 2% target, for both headline and core measures.Core inflation excludes more-volatile food and energy prices. As the figures indicate, through February 2026, a large fraction of excess inflation came from the estimated effects of tariffs. However, since March, other factors appear to be the main drivers of excess inflation, likely reflecting, among other things, the recent increase in energy prices.

These findings are driven by estimated coefficients of tariffs’ pass-through to PCE prices, which have stabilized since February 2026. Combined with lower effective tariff rates, our estimates show that the effect of tariffs on inflation appears to have leveled off in the last few months or even declined slightly.

Looking Ahead

While tariffs continue to exert upward pressure on consumer prices, our estimates suggest this pressure has moderated. However, the contribution of tariffs to inflation will ultimately depend on the dynamics of tariffs over the following months. It is not yet clear how new levies on U.S. trading partners—announced in late July with the expiration of temporary measures imposed following the Supreme Court ruling—will impact the effective tariff rate and thus the contribution of tariffs to overall inflation. If effective tariff rates stabilize at current levels or if they continue declining, we expect the contribution of tariffs to overall inflation to diminish further.

Notes

1. This analysis preceded the imposition of Section 301 tariffs announced on July 23.
2. The effective tariff rate measures what importers actually paid, on average, over a past period, relative to the value of imports. It differs from the rate posted in tariff schedules because of trade agreements, exemptions and other factors.
3. Core inflation excludes more-volatile food and energy prices.