New York Fed Tariff Study Leaves Unexplained Deflation in Non-Tariffed Goods
A New York Fed paper on tariffs shows some pass-through to consumer prices but does not prove an overall rise in the price level. The study assumes non-tariffed goods would have behaved the same without tariffs, a counterfactual the authors acknowledge is illustrative. The analysis notes that prices for goods without tariff exposure fell, a deflation the paper cannot fully explain.
The New York Fed study examines 67 goods categories and estimates how much tariff costs reached consumers. Its comparison relies on a hypothetical no-tariff path for products deemed unexposed. The authors caution on page 20 that this benchmark is illustrative because economy-wide movements are absorbed by date fixed effects, a missing-intercept issue. They treat relative price changes as absolute effects.
The paper's chart shows actual price growth versus that no-tariff counterfactual, with a 2.9 percentage point gap often cited. The counterfactual implies non-tariffed goods deflation accelerated to about minus 1.5 percent late last year, a sharp reversal from earlier trends. That line is derived by subtracting the tariff estimate, not an independent forecast.
The study's uncertain counterfactual could shape how consumers, businesses, and policymakers interpret tariff costs. If pass-through is partial and non-tariffed goods deflation remains unexplained, households may see uneven price changes rather than a clear overall increase. Investors and analysts may adjust inflation expectations cautiously, while journalists and officials may face pressure to avoid overstating the paper's findings. The practical effect may be more debate than settled conclusion.