Boston Fed Economists Say Tariffs Not Main Cause of 2025 Inflation

Tariffs alone cannot explain the persistence of 3% inflation in 2025, three Federal Reserve Bank of Boston economists wrote in an article posted Wednesday (Aug. 19).

While U.S. tariffs rose from 2.5% to 10% in 2025, productivity gains partially offset that increase in costs, and the net contribution to core Personal Consumption Expenditures (PCE) inflation was only 0.5 percentage points, Philippe Andrade, Omar Barbiero and Alvaro Silva wrote in the article.

The authors attributed this limited effect to the fact that the sectors that were most impacted by tariffs also experienced greater growth in labor productivity, which mitigated tariff-driven cost increases. They highlighted the data processing and motor vehicles sectors, which saw labor productivity improvement of 16.64% and 11.78%, respectively, in 2025.

“Productivity gains thus strongly offset the increase in consumer prices induced by tariffs,” the authors wrote. “These results suggest that the new trade policy alone cannot explain the persistence of 3% inflation in 2025 and that other inflationary factors also may have been at play.”

New York Fed economists wrote in a July 8 blog post that almost half of companies were still raising prices to pass through the costs of tariffs to consumers more than a year after the first tariffs of the current President Donald Trump administration were implemented.

A New York Fed survey found that businesses gave two main reasons for their plans to raise prices in the future: they operate under contracts that prevent them from raising prices until the contract expires, or they have chosen to raise prices gradually over time to avoid shocking their customers with an immediate increase that covers all of their tariff costs.

Another article posted by the New York Fed in February said foreign exporters paid a growing share of the cost of new tariffs in 2025, although U.S. importers continued to pay for most of that cost.

The authors of that article also found that global supply chains shifted in response to the new tariffs, with the share of U.S. imports held by China falling while the shares of Mexico and Vietnam made the greatest gains.