A measure of U.S. business prices edged up less than expected in February, once again indicating that tariffs have not weighed on the American consumer.
Ever since the Trump administration announced it would impose tariffs on imported steel and aluminum a year ago, many economists have been predicting that rising U.S. tariffs would drive prices higher for U.S. consumers, with some describing tariffs as a “tax on consumers.” Cars, in particular, were supposed to see prices soar.
“U.S. President Donald Trump’s steel and aluminum tariffs will boost car prices by hiking commodity costs for manufacturers, automakers have warned,” Reuters reported last year.
But none of the official measures of prices indicate much tariff-driven inflation. That widely touted auto-paclypse in car prices certainly has not occurred.
The Producer-Price Index, which mostly measures the prices businesses receive for their goods and services, rose a seasonally adjusted 0.1 percent in February from a month earlier, the Labor Department said Wednesday. From a year earlier, the producer-price index increased 1.9 percent. Economist had expected 0.2 percent for the month and 2.0 percent for the year.
Prices for goods, less volatile food and energy categories, were up the same 0.1 percent for the month. This is the broadest category where tariffs would show up if they were to hit consumers.
Tariffs have raised prices for businesses further out on the production chain but these are not getting passed on to consumers, according to the data. There is very little evidence in the latest producer-price index that tariffs are acting as a tax on consumers–and plenty that they are not.
The prices of steel mill products, for example, are up 12.6 percent compared with a year ago, thanks to the steel tariffs and increased demand. But this is a slowdown in inflation compared with last October 18.6 percent year over year price climb, suggesting that U.S. production is ramping up to meet demand. (Note: the metals tariffs were announced a year ago but not imposed until later so the year-over-year gain for February is still a relevant measure of pre- and post-tariff prices.)
But the prices of stuff made of steel and sold to consumers are barely up at all. Auto parts are up just 0.5 percent compared with a year ago. Car prices are up just 1 percent for the year. Prices of “light trucks”–SUVs and pickup trucks–are up 1.1 percent.
Prices of materials used to make durable goods fell in February by 0.9 percent but are up a 4.5 percent year-over-year, likely driven higher by both steel and aluminum tariffs. But the prices of the durable goods themselves are up just 2.2 percent for the year and ticked down in February. The tariffs have raised costs but most of that gets absorbed by the manufacturers rather than passed on to consumers.
Prices of home appliances are up 5.9 percent compared with a year ago and rose a steep 0.5 percent in February. This is an acceleration from last year and may reflect the China tariffs. Even here, however, the price hikes of appliances are somewhat offset by a 0.4 percent decline in home computer equipment and the o.4 percent gain in other home electronic equipment.
This highlights the fact that when tariffs do raise prices of some consumer goods, other prices typically fall as consumer spending shifts rather than rises.
Toys and sports equipment make up one of the largest categories of stuff imported from China, amounting to $26 billion in 2017. Toy prices were unchanged for the month and are up just 0.3 percent for the year. Sports equipment prices rose by 0.9 percent, perhaps reflect some pressure from tariffs or import-hoarding to avoid even higher tariffs, but compared with a year ago prices are up just 2.2 percent.
The U.S. imported $32 billion of furniture from China last year and this category got hit with new tariffs at the end of September. In October, this category saw a pretty big jump of 1.1 percent. But that looks to have been a temporary event, perhaps also reflecting hoarding to hedge against even higher tariffs. The past three months, however, have seen much smaller rises and now this category is up 3.9 percent year over year.
But most of the tariffs on furniture appear to be being absorbed by retailers and wholesalers. Margins for these, reported in the Producer Price Index under the trade services category, have declined every month for the past four months and are down 6.9 percent compared with a year ago.
This pattern in furniture and steel mill products indicates that the tariffs have not created inflation. Price hikes actually retreat after the initial post-tariff hike. And keep in mind that as households had to pay more for furniture in furniture and appliances, they paid less for televisions, phones, and computers. This is another demonstration of the fact that tariffs do not raise prices generally, they shift them around.