Surprisingly, many critics, a recent report from the Council of Economic Advisers (CEA) has found that tariffs imposed by the Trump administration have not led to the expected surge in inflation in 2025.
According to Fox Business, the report, analyzing key inflation metrics, shows that prices of imported goods have declined this year, challenging assertions that these trade policies would drive up costs for American consumers.
The CEA, an agency within the Executive Office of the President, released its findings based on data collected through May 2025. This analysis comes in the wake of widespread debate over the economic impact of tariffs introduced during President Donald Trump’s second administration. Many had predicted that these levies on goods from various countries would increase consumer prices and contribute to inflation.
Contrary to those predictions, the CEA report indicates that imported goods prices started diverging from overall goods prices as early as the end of 2023. This trend has continued into 2025, with a noticeable decline in the cost of imported items. By March 2025, the price of imported components began to drop, while overall prices either remained stable or saw slight increases.
The report specifically examined two key inflation indicators: the Personal Consumption Expenditure (PCE) Price Index, used by the Federal Reserve, and the Consumer Price Index (CPI), a widely recognized measure for the public. These indices were broken down into imported and domestic components to better understand the impact of trade policies. From December through May, overall goods prices in the PCE index rose by 0.4%, which translates to a 1% annualized rate.
During the same period, however, the imported segment of PCE goods prices fell by 0.1%. In the CPI, the decline was even more pronounced, with imported goods prices dropping by 0.8%, while overall goods prices stayed flat. These findings suggest that the tariffs have not had the inflationary effect many anticipated.
The CEA emphasized that its analysis holds across various categories of goods in the PCE index. "CEA’s directional findings using this method of analyzing the PCE are consistent across core goods (excluding food and energy), durables (which last for at least three years), and nondurables," the report stated. This consistency strengthens the argument that imported goods are not contributing to price increases.
While the PCE and CPI show similar patterns, the CEA noted differences in their scope and how they weight various products. Despite these variations, the parallel results in both indices underscore the reliability of the findings. Cumulatively, overall PCE prices rose by about 1.1% since December, compared to just 0.2% for PCE import prices.
"Cumulatively, overall PCE prices have increased by about 1.1% since December compared to about 0.2% for PCE import prices," the report explained. "However, those values include pricing for services, which tend to have lower import intensity, so the divergence could be due to stickier services prices," it added. This suggests that services, less affected by imports, may be driving some of the overall price increases.
The report also highlighted the broader context of how imports affect inflation. "The import contribution to inflation includes both the direct impact of imported final goods for consumption and indirect effects of imported intermediate inputs," the CEA noted. This dual role underscores the complexity of tracing tariff impacts through the economy.
Importantly, the CEA found no significant change in the trajectory of imported goods prices in 2025. "Importantly, there is no clear trend break so far this year," the report stated. "This analysis suggests that tariffs have not reduced the disinflationary impulse from imported goods as of May," it continued. The divergence between imported and overall goods prices isn’t a recent phenomenon. "Goods and imported goods prices started to diverge towards the end of 2023, and have continued since," the report observed. This long-term trend provides additional context for the current findings.
Delving into specifics, the CEA pointed out recent shifts in pricing dynamics. "The results clearly show the price of imported components declining, starting in March, while overall prices were close to unchanged or increased slightly," the report detailed. This granular data helps explain why inflation fears tied to tariffs have not materialized.
The decline in imported goods prices has outpaced that of overall goods since February 2025, according to the report. This pattern challenges the narrative that trade barriers inevitably lead to higher costs for consumers. It also raises questions about how tariffs interact with other economic factors.
While the findings are compelling, the CEA acknowledged that its analysis lacks a counterfactual scenario where tariffs were not implemented. Without this comparison, it’s challenging to fully isolate the tariffs’ effects from other market forces. Nevertheless, the data as of May 2025 shows no evidence of tariffs driving inflation. The CEA’s report offers a snapshot of the economic landscape through May 2025, but ongoing scrutiny will be necessary. As trade policies evolve, their long-term effects on prices may become clearer. For now, the evidence suggests that fears of tariff-induced inflation may be overstated.