The majority of tariff-driven inflation has already filtered into US consumer prices, with additional effects still to come, according to economists at Deutsche Bank.
“As of July, relative to their 2024 trend, prices for high import share core PCE goods are about 1.3% higher, which has boosted the overall core PCE level by about 30 basis points,” analysts wrote in a note.
High import share goods, which represent about 23% of the core personal consumption expenditures (PCE) index, have absorbed most of the tariff impact so far.
“This implies that relative to full passthrough, about 75% of the first round of tariffs have thus far made their way through into the consumer prices for high import share goods,” they wrote.
While much of the impact is already visible, Deutsche Bank pointed out that some categories, such as new vehicles and apparel, have not yet seen significant effects.
“Depending on the level of actual passthrough, tariff-related price increases for high import share goods could add another up to 10 basis points to the overall core PCE price level,” analysts wrote.
For medium import share goods and services, which make up 57% of the core PCE basket, prices have so far tracked slightly below trend.
“Importantly, based on this counterfactual, none of the elevated inflation in this category seems to be a function of tariffs thus far,” the economists wrote.
They added that under full passthrough, “this could add another up to 20 basis points to overall core PCE prices, again depending on how much of the additional tariff input costs end up being passed through.”
Low import share categories, accounting for about 21% of the index, are largely unaffected.
According to the analysts, “even with full passthrough into this category, a 7.1 percentage point increase to the average tariff rate would add only 4 basis points to their prices and less than 1 basis point to the overall core PCE price level.”
Looking ahead, Deutsche Bank cautioned that inflation pressures are likely to rise further.
“This indicates that there is still scope for the first round of tariffs to still have more of an impact on inflation in the near term,” the analysts wrote.
“On top of that, the August round of tariffs would be expected to add another roughly 5 percentage points to the average tariff rate, thereby boosting core goods prices by up to another 1.2 percentage points and the core PCE price level by another 40 basis points depending on the ultimate rate of passthrough.”