Tariffs are 'simply inflationary,' economist says: Here's how they fuel higher prices

cnbc.com:

There was an oft-repeated message in Federal Reserve chair Jerome Powell's press conference on Wednesday: Tariffs will raise consumer prices.

The U.S. central bank raised its inflation forecast for 2025, as have many economists, due to the expected impact of a trade war initiated by the Trump administration.

«A good part of it is coming from tariffs,» Powell said of the Fed's elevated inflation estimate.

«I do think with the arrival of the tariff inflation, further progress may be delayed,» Powell said.

His statement comes at a time when pandemic-era inflation has gradually declined but hasn't yet been fully tamed to the Fed's goal of a 2% annual inflation rate.

«Tariffs are simply inflationary, despite what [President] Donald Trump may tell people,» said Bradley Saunders, a North America economist at Capital Economics.

Tariffs are a tax on imports. U.S.-based importers — say, clothing retailers or supermarkets — pay the tax so goods can clear customs and enter the country.

Tariffs raise prices for consumers in a few ways, economists said.

For one, tariffs add costs for U.S. businesses, which may charge higher prices at the store rather than take a hit on profits, Saunders said.

Tariffs are a protectionist economic policy, meaning they seek to protect U.S. businesses from international competition by making foreign products more expensive.

Consumers may switch to a U.S. product rather than pay a higher price for the foreign counterpart. However, that logic may not pan out. The U.S. substitute was likely more expensive than the foreign product to start, Saunders said — otherwise, why wouldn't consumers buy the U.S.-produced good to begin with?

So tariffs may still leave the consumer paying more, whichever products they