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Tariffs could add 2.25% to a core inflation measure over the next year, reversing progress against price pressures since 2024, according to a new estimate.
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Economists were divided on whether inflation was on its way out ahead of Trump’s tariff announcements, with some predicting it would have simmered down to the Fed’s goal of a 2% annual rate by the end of the year.
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Trump has denied that merchants will pass price increases on to customers, contradicting trade experts.
President Donald Trump’s tariffs could push inflation back to levels not seen since the post-pandemic price surge, according to an estimate from Goldman Sachs this week.
The sweeping import taxes President Donald Trump announced between February and April could have a seismic impact on the economy, and consumers could see it first at the checkout register. The tariffs could push annual inflation (as measured by core Personal Consumption Expenditures) as high as 3.8% by December, the highest since 2023, Goldman economists estimated in a commentary published this week. The Federal Reserve’s preferred measure of inflation rose 2.6% over the last year.
A wave of price increases could hit American consumers hard, especially if the job market slows down at the same time, as many economists have predicted. It would also be a setback for the Federal Reserve, which has kept its benchmark interest rate elevated since 2022 to suppress the post-pandemic surge of inflation.
Inflation has barely simmered down from around 3% at the beginning of 2024, but dipped significantly in March. Many economists predicted it would fade as the year went on, nearing the 2% goal by the end of 2025.
“I think the underlying inflation picture is good,” Fed Chair Jerome Powell told reporters at a press conference this week following the Fed’s decision to keep its key interest rate flat.
“On the eve of the implementation of large tariffs, the inflation problem in the U.S. appeared solved,” Ronnie Walker and Elise Peng, economists at Goldman Sachs, wrote in a commentary. “However, in the coming inflation readings, the impact of tariffs will reverse that progress.”
Other economists were more pessimistic about the trajectory of inflation absent tariffs. In a commentary this week, economists at Deutsche Bank said that underlying inflation was stubborn and that “progress in trend inflation had stalled out somewhat even prior to the tariff.”
Whether inflation would have gone down without the tariffs will never be known. On Thursday, Trump announced a trade deal with Britain that kept his 10% tariff in place, suggesting that tariffs will be part of U.S. economic policy to some extent, even if other countries negotiate.
