Tariffs added an estimated 2.9 percentage points to consumer-goods inflation by February 2026, according to new research from economists at the Federal Reserve Bank of New York and Columbia University. Without the tariff contribution, prices across the study’s 67 non-oil goods categories would have fallen slightly.
The investor implication is not that all inflation was caused by tariffs. Services make up roughly two-thirds of the consumer basket and were excluded from the sample. The study instead isolates a large relative-price shock in goods, with consequences for retailers, manufacturers and monetary policy.
How the pass-through works
The researchers estimate that about 90% of the 2025 tariff increase passed into U.S. import prices because foreign exporters cut their prices very little. Distribution costs dilute the effect by the time a product reaches a shopper: a 10% tariff-driven increase in import and producer prices raised retail prices by an estimated 5.6%.
Combining the channels, the paper finds that a 10% tariff applied to all imports would lift consumer-goods prices about 2.6% after twelve months. Roughly two-thirds of the effect comes directly through imported consumer products. The remaining third comes through U.S.-made goods, as domestic producers pay more for imported inputs or raise markups when competing imports become dearer.
Timing is crucial
Imported-goods prices respond quickly, with much of the direct effect arriving within six months. Indirect effects take longer because higher input costs move through domestic supply chains over six to twelve months. That lag means a tariff change can keep affecting prices after the initial announcement disappears from headlines.
The New York Fed’s forecast separates the price level from the inflation rate. The contribution to year-over-year goods inflation peaked in February 2026 and was expected to fall toward zero by August as earlier increases rolled out of the comparison. Yet the goods price level remained about 2% higher because of tariffs. Slower inflation therefore does not mean the prior price increase reverses.
Market and company transmission
For retailers, the margin effect depends on pricing power, inventory timing and the share of imported merchandise. Absorbing tariffs protects demand but compresses gross margin; passing them through protects margin per unit but can reduce volume. Domestic producers are not automatically insulated because imported components and competitor pricing can raise their costs and prices as well.
For the Fed, the study creates a policy tension. Tariffs can produce a temporary inflation impulse, but the indirect channel is persistent enough to complicate judgments about underlying inflation. Central bankers must distinguish a level shock from a self-reinforcing wage-and-price process while still protecting inflation expectations.
The research is an estimate, not a complete accounting. It holds economy-wide factors such as exchange rates, wages, demand and monetary policy fixed, even though tariffs may influence them. The strongest conclusion is therefore specific: in the sampled goods, tariffs materially raised prices, including through domestic supply chains, and their effect on the price level outlasts their peak contribution to the inflation rate.
The study’s counterfactual is especially important. Researchers compare categories with different tariff exposure and hold broad factors fixed. That approach improves identification, yet it cannot capture every general-equilibrium response. A stronger dollar could offset some import costs; weaker demand could reduce markups; retaliation could lower export demand; and fiscal or monetary responses could change the outcome. The authors explicitly caution that these channels may amplify or offset their estimates.
For investors, the distinction between inflation and price level changes the rate outlook. If tariff contribution to twelve-month inflation fades mechanically, headline disinflation can occur while households still face permanently higher goods prices. A central bank that reacts only to the annual rate could ease even though purchasing power has not recovered; a bank that treats every tariff shock as persistent could overtighten against a level effect.
Sector sensitivity varies. Retailers with short inventory cycles may reprice quickly, while businesses with long contracts or hedges feel the cost later. Companies with domestic factories can still face imported-input inflation. The study therefore argues against a simplistic domestic-winner/importer-loser screen. Gross margin, sourcing flexibility and demand elasticity provide the more useful company-level test.
The forecast path is conditional on tariffs staying at end-September levels except for the announced Canadian auto increase. A legal or policy reversal would change the direct channel quickly, while already-incurred domestic cost effects could unwind more slowly. Investors should therefore update the estimate when tariff schedules change rather than carry the February 2.9-point contribution forward as a permanent annual rate.