CEA's Miran: Tariffs have caused no pain for American consumers at all

Key Concepts

• PCE (Personal Consumption Expenditures) Inflation Data
• CPI (Consumer Price Index)
• Tariffs and their potential impact on inflation
• Imported goods vs. Domestically produced goods
• Core Inflation
• Tax Incidence
• Volatility in Economic Data
• Mean Reversion

Inflation Analysis Since December (Post-Tariff Implementation)

The White House Council of Economic Advisors (CEA) analyzed PCE and CPI inflation data, breaking down goods into US-originated and foreign-originated components, to assess the actual impact of tariffs implemented since January. The analysis is available on the CEA website.

• Overall Goods: Since December, overall goods prices in the PCE data have increased by approximately 0.4%.
• Imported Goods: During the same period, the price of imported goods (including components and finished products) has decreased by 0.1%.
• Conclusion: The data does not support the claim that tariffs are causing significant price pressures on imported goods. Instead, the data suggests the opposite.
• This helps explain why overall inflation has remained tame since the current administration took office.

Core Inflation Trends

• Similar patterns are observed in core inflation data.
• While the price decrease for imported goods might not be as pronounced in core inflation as in overall inflation, the increase in domestically produced goods' prices is still significantly higher than that of imported goods.
• This consistent "wedge" demonstrates that domestically produced goods have experienced more inflation than imported goods.

Addressing Concerns About Delayed Inflationary Effects

• Critics have argued that the effects of tariffs might not be immediately apparent and could materialize later.
• However, the CEA's analysis has found no evidence of sustained tariff-driven price pressures, even when examining higher-frequency data and academic research using scanner data.
• The observed patterns appear to be "noise and mean reversion," lacking a consistent trend indicating tariff-related inflation.
• A similar situation occurred in 2018-2019, where predictions of significant inflation due to tariffs did not materialize.

Potential for Future Inflation with Increased Tariff Implementation

• Acknowledging the potential for volatility in inflation data (similar to fluctuations in financial markets or GDP), the speaker maintains that increased volatility is possible in the price data too.
• However, based on the economic principle of "tax incidence," the speaker expects that in the long run, foreign countries will bear the burden of tariffs due to their relative inflexibility in the market.
• This expectation is a long-term argument, and the current data does not yet reflect this outcome.

Tax Incidence Explained

• Tax incidence refers to the division of a tax burden between buyers and sellers.
• The party that is less able to adjust its behavior in response to the tax (i.e., the more "inflexible" party) ultimately bears a larger share of the tax burden.
• In the context of tariffs, the speaker believes that foreign countries will ultimately bear the burden due to their relative inflexibility in the face of trade restrictions.

Synthesis/Conclusion

The analysis presented by the White House Council of Economic Advisors suggests that, contrary to expectations, tariffs implemented so far have not led to significant inflationary pressures on imported goods. In fact, the data indicates that imported goods have experienced less price inflation than domestically produced goods since the tariffs were introduced. While the possibility of future inflationary effects due to tariffs cannot be entirely dismissed, current evidence does not support the claim that tariffs are driving inflation. The speaker believes that, in the long term, foreign countries will bear the burden of these tariffs based on the economic principle of tax incidence.