US OUTLOOK/OPINION: Mixed Implications For CPI Hit From Tariff Revenues

Core goods inflation is expected to accelerate a little further in August on a M/M basis and tariff revenues still point to further solid increases ahead, but the pace at which tariff revenues have been closing the gap with implied tariff rates has slowed in recent months. 

• Monthly core goods CPI inflation is expected to accelerate in tomorrow’s August release, with analyst expectations averaging 0.3% M/M after two months at 0.2% M/M (including July’s undershooting of then expectations of a 0.4% increase).
• It comes as tariff-driven price increases are generally seen to be getting towards the largest for the year. There’s a rough consensus of a three-month lag from tariff implementation to more notable consumer price increases. That factors in the time taken for shipments, a front-loading of imports that built up inventories and points including importers using the automatic payment transfer system being able to delay their tariff payments for up to 1.5 months.
• On a similar note, the July Beige Book noted that “Contacts that plan to pass along tariff-related costs expect to do so within three months” whilst the August Beige Book, published Sep 3, noted that “Nearly all Districts noted tariff-related price increases, with contacts from many Districts reporting that tariffs were especially impactful on the prices of inputs.”
• Latest tariff revenue meanwhile suggests we’re still a little way off seeing the full impact from tariffs on prices. The effective tariff rate currently stands at 17.4% according to Yale Budget Lab calculations (pre-substitution, i.e. keeping trade shares constant) whereas the $31bn of Treasury deposits from customs and certain excise duties in August was worth 11-11.5% of goods imports depending on whether you take 2024 levels for a similar static approach or annualized July data.
• The speed at which the tariff collection rate is increasing has slowed notably in recent months, suggesting it could take a while for this gap to the effective rate to be closed. Indeed, the $31.3bn of tariff revenues is vs $30.1bn in July and $28.4bn in June, after larger increases from $24.0bn in May, $17.4bn in April and $9.6bn in March.
• Alternatively, whilst these tariff revenues are still on the small side compared to what effective rates might suggest, they were still worth a sizeable ~1.8% of overall personal consumption expenditure. That’s an increase of ~1.3pp under the Trump administration so far, but of course doesn’t give insight into burden sharing across importers, businesses and consumers.