By July, the Federal Reserve Bank of Minneapolis had watched a relationship that was flat as recently as December turn decisively positive. Tariffs, economists Neil Mehrotra and Michael E. Waugh concluded, are now adding 0.2 to 0.4 percentage point to core inflation, an effect that was barely visible in the same regression eight months earlier. The delay, not the absence, is what had been masking tariffs in the inflation data.
The two researchers, an assistant vice president and policy advisor and a monetary advisor at the bank, had argued as recently as April that tariffs could not explain the bulk of that year’s elevated goods inflation. Their newer analysis, using data through July, walks back part of that conclusion: the pass-through firms had been expected to make was simply slower to show up than the tariff schedule itself.
An accounting framework built from trade tables, not guesswork
Mehrotra and Waugh’s estimate rests on an accounting framework described in their August 28 analysis, which converts country- and industry-specific tariff rates into cost shocks using input-output tables that trace how a duty on one input ripples through to a finished product’s price. They then compared each core-goods category’s predicted tariff effect against its actual excess inflation, measured against a 2015-2019 baseline. Through December 2025, the fitted line across categories was flat, meaning tariffs and inflation showed little relationship. By July, that line had turned markedly positive, letting them calculate a contribution of 23 basis points using one statistical method and 38 basis points using another, a range that rounds to the 0.2-to-0.4 point figure in their conclusion. The two estimates differ mainly in how much weight they give to bigger-spending categories: the smaller figure treats every category equally, while the larger one gives more weight to categories such as motor vehicles and apparel that carry a bigger share of household spending, which is why the researchers present a range rather than a single number.
Inside the kit: A tariff-driven price increase moves through a supply chain before it reaches a store shelf, while a property-tax or utility bill moves on its own separate schedule. The five kinds of property-tax relief and the circuit-breaker credit that includes renters, both inside The Senior Property Tax & Home-Cost Relief Kit, apply to that second, quieter bill.
How the tariff effect fits into the wider goods-inflation picture
Core goods overall — everything from furniture to apparel to electronics — were up 2.3 percent year over year through July, adding more than 0.7 percentage point to core PCE inflation relative to the 2015-2019 average, the same analysis found. Tariffs account for roughly 0.2 to 0.4 percentage point of that pressure, the AI-driven jump in video and information-processing equipment prices adds about another 0.4 percentage point on its own, and the remainder comes from categories the researchers’ framework does not fully explain.
Clothing shows the clearest fingerprint of the delay
No category illustrates delayed pass-through better than clothing and footwear. Year-over-year inflation in that category rose from 0.3 percent in December 2025 to 3.5 percent in July 2026, according to the Minneapolis Fed’s analysis, after running close to zero before the pandemic. Other heavily tariffed goods have moved more slowly: new motor vehicles, among the categories facing the steepest duties, have yet to show sizable inflation increases, even as additional tariffs on auto parts have since been announced.
A separate, larger jump the researchers set aside
The 0.2-to-0.4 point tariff contribution is not the only force the two researchers measured. Core PCE inflation reached 3.3 percent year over year through July, the highest reading since 2023, and Mehrotra and Waugh found that video and information-processing equipment, a category largely untouched by tariffs, is separately adding about another 0.4 percentage point on its own, driven by demand tied to artificial-intelligence investment rather than trade policy. Even setting tariffs aside entirely, the researchers estimated that core PCE inflation would still run about one percentage point above the Federal Reserve’s 2 percent target.
What firms are telling the New York Fed about what comes next
Whether the tariff contribution keeps climbing depends partly on decisions firms have not yet made public. Mehrotra and Waugh cited a July analysis from the Federal Reserve Bank of New York, in which economists Jaison Abel, Mary Amiti, Richard Deitz, Sebastian Heise and Nick Montalbano reported that, among firms that had already paid tariffs directly, 47 percent of service firms and 44 percent of manufacturers were still planning further tariff-related price increases, based on the bank’s May 2026 regional business surveys. That is a signal that the relationship Mehrotra and Waugh measured through July may not have finished shifting. Their own April 8 analysis, which had put the tariff effect closer to half a percentage point of core PCE inflation using data through January, is a reminder that the number has moved before and is likely to move again as more categories catch up.
A tariff line item moves through the data faster than a property-tax bill changes
A tariff’s path from a trade proclamation to a store price can take months to show up in the numbers, and the Minneapolis Fed’s own estimate has already shifted once as more data arrived. A property tax or utility bill runs on a slower, more local calendar that a national inflation report never covers.
The Senior Property Tax & Home-Cost Relief Kit covers the circuit-breaker credit that includes renters and the heating, cooling and home-repair help tied to that local, slower-moving side of a budget.
Compare the relief options in The Senior Property Tax & Home-Cost Relief Kit.
This article was produced with AI assistance and reviewed by a human editor. Figures are linked to their primary sources.
