Tariffs Are Not Causing Inflation: Breaking Down August 2025 CPI

The August 2025 inflation report has reignited debate over tariffs. Some pundits have been quick to blame trade policy for rising prices, invoking Smoot-Hawley comparisons and warning of disaster on the scale of the Great Depression. But the data tells a different story. Inflation today is moderate, running far below the post-COVID peak and even below January 2025 levels, before any new tariffs were enacted. Furthermore, the main drivers of August 2025 inflation are housing shortages, energy demand, and food supply shocks — not tariffs.

This report breaks down the August numbers to separate fact from myth. By looking at what actually moved prices last month, and what didn’t. We can see clearly that tariffs are not an inflation engine. Instead, they are functioning as a strategic tool to support domestic industry while inflation comes from elsewhere.

August 2025 Inflation Snapshot

MAIN DRIVERS:

Shelter: +0.4% m/m — Housing remains the single biggest contributor to core inflation, driven by a record shortage of available units [1] and high borrowing costs [2] that push families into the rental market.
Airline Fares: +5.9% m/m — Fares spiked as jet fuel costs stayed high [3], pilot shortages worsened [4], and strong summer travel demand pushed prices up [5].
Beef: +2.7% m/m retail; +8% wholesale PPI — Cattle herds have been reduced by decades of import disruption [6] and worsening drought conditions [7]. Disease risks, like the Mexican cattle ringworm outbreak [8], have also tightened supply and lifted prices.
Coffee: +6.9% m/m — A poor global harvest combined with shipping disruptions and a weaker dollar has raised the global cost of coffee (not only the U.S. import cost) [9].
Electricity: +0.3% m/m — Demand from data centers and AI expansion is straining the grid and raising costs for everyone [10]. Even with only a modest monthly rise, electricity costs matter because they ripple through the entire economy — from household bills to energy-intensive industries — making them a broad and persistent contributor to inflation.
Eggs: flat m/m, but +10.9% YoY — Although stable in August, egg prices remain far higher than a year ago, still reflecting earlier supply losses from avian influenza [11] and high feed costs [12].

WHAT'S NOT DRIVING INFLATION:

Autos: New vehicles rose +0.3% m/m and used vehicles +1.0% m/m — Section 232 duties were enacted in April 2025 [13], but price increases are modest and roughly in line with overall CPI, not outsized or driving inflation.
Steel & Aluminum: +0.4% m/m — Section 232 tariffs doubled from 25% to 50% in June 2025 [14], yet prices rose only modestly. No inflation spike, just steady movement tied to energy and production costs.
Electronics: flat to +0.1% m/m — Despite the heaviest tariff exposure under Section 301 and reciprocal tariffs on China [15], consumer electronics stayed stable in August. Competition and tech-cycle deflation offset tariff costs.
Pasta, Olive Oil, and Spices: 0.0–0.2% m/m — Tariffed European and other import-dependent groceries were essentially flat in August. Stable global supply and easy consumer substitution kept prices in check, showing tariffs aren’t driving grocery inflation.

Bottom Line: August inflation came from housing, services, food shocks, and energy — not from tariffed imports.

The August CPI snapshot makes the story clear: inflation is being driven by housing, services, food supply shocks, and energy — not tariffed imports. Yet despite this data, critics continue to recycle old talking points about tariffs causing economic disaster, raising consumer costs, or crushing U.S. manufacturers. These claims are dramatic, but they don’t hold up when measured against the actual numbers. Let’s take them one by one.

Myth 1: Tariffs Cause Inflation and Economic Disaster

Some economists continue to invoke Smoot-Hawley or claim modern tariffs are catastrophic, but today’s data simply doesn’t match those scare stories.

“Last time we had tariffs this high was the infamous Smoot-Hawley Act, with the Depression era Smoot-Hawley Act. And if that doesn’t give you a hint about what this does, nothing else will.” – Justin Wolfers, University of Michigan Economist, MSNBC

“This is the biggest policy mistake in 95 years. An unforced error. Did not have to happen.” – Jeremy Siegel, Wharton Finance Professor, CNBC

Reality check: If tariffs caused “economic disaster,” inflation wouldn’t be at 2.9% — it would look like 2022 all over again.

Inflation data does not support these dire warnings. CPI rose just 0.2% in August, while PPI actually declined. As shown in Figure 1, Inflation today is running 63% below the 2022 average and even just below January 2025 inflation levels, hardly the sign of an “economic disaster.”

FIGURE 1:

Why is this happening? Perspective is key. Goods imports account for only 11% of U.S. GDP. In 2024, GDP was $29.18 trillion [16], while goods imports totaled $3.3 trillion [17]. Even a sizable tariff on this relatively small slice of the economy cannot drive overall inflation when far stronger forces are at work — namely credit growth and supply shocks.

The true drivers can be seen during inflation heavy years like 2022. Average inflation in 2022 was 8%, the highest in four decades. That surge wasn’t caused by tariffs. It was fueled by a COVID-era credit and money supply explosion [18] [19]. Banks pumped trillions into unproductive lending while lockdowns shuttered factories and emptied shelves. When all that new money met collapsed supply, prices spiked. Inflation follows excess money and credit, not tariffs.

Myth 2: Tariff Costs Are Passed Directly to Consumers

Critics also argue consumers bear nearly all tariff costs, but the August CPI tells a different story.

“In most cases it is actually the American consumer, companies or individuals paying it. We’ve had tariffs since trump was in office the first time and the vast major of studies have shown that Americans paid about 95% of that tariff.” – Scott Linicome, Cato Institute, PBS

“All of this is going to make their life more expensive.” “Tens of billions of dollars that US companies are paying will pass down to consumers.” – Jared Bernstein, Biden White House Chief Economist, CEA Chair, MSNBC

Reality check: The biggest inflation increases for consumers came from goods and services untouched by tariffs. If 95% of tariffs were passed through, autos and steel would be leading inflation. They aren’t.

August inflation shows this is not the case. Americans are paying more for certain goods and this is a problem that needs address. But the drivers of price increases for everyday Americans were not tariffed items. They were items such as:

Shelter (+0.4%) — housing shortage and high mortgage rates.
Airfares (+5.9%) — labor shortages and fuel costs.
Beef (+2.7%) — drought and cattle disease.
Eggs (+10.9% YoY) — lingering effects of avian influenza.
Electricity (+0.3%) — data center demand and energy input costs.

These are domestic bottlenecks, not tariff-driven costs.

Meanwhile, tariffed goods are holding steady:

Autos: +0.3% (in line with overall CPI).
Steel & Aluminum: +0.4% (stable).
Electronics, pasta, olive oil: essentially unchanged.

If tariffs were automatically passed through, these categories would be driving inflation. Instead, they are either average or flat, while non-tariff sectors dominate price increases.

Another reason for this is that foreign firms are increasingly absorbing the burden of U.S. tariffs, holding down prices to preserve market share and avoid alienating American customers. Companies from Japan, South Korea, China, and Europe have cut export prices, accepted thinner margins, or drawn down inventories rather than pass higher costs directly onto shoppers (Figure 2). Their current healthier balance sheets and larger profit margins compared with Trump’s first tariff war have made it possible—at least for now—for overseas suppliers to shoulder much of the impact.

In addition, America’s retail giants have used their market power to shift tariff costs onto suppliers. Walmart, Amazon, Costco, and Home Depot have leaned on vendors, from global brands to contract manufacturers, to absorb higher import costs in order to keep prices steady for consumers. Consolidation, the rise of private labels, and sheer buying clout have allowed these retailers to preserve margins while limiting pass-through to shoppers, leaving suppliers squeezed even more than customers.

Myth 3: Tariffs Crush U.S. Manufacturers by Raising Input Costs

Opponents also claim tariffs on steel and parts choke manufacturers:

“A lot of these tariffs are on intermediate inputs that we use to help us make stuff and to create jobs and higher wages…it could be on the steel that’s used by an auto company. And so it can end up hurting a number of different manufacturing industries.” – Jason Furman, Former Obama CEA Chair, Harvard Economist, The Bulwark

Reality check: If tariffs were crushing industry, machinery and auto prices would be spiking. But the producer price data shows no such damage. Instead, they’re flat.

The August 2025 Producer price data shows no evidence that tariffs are hurting U.S. manufacturing.

Overall PPI: −0.1% m/m, +2.6% YoY — wholesale inflation actually eased in August, showing no broad price shock from tariffs.
Machinery & Vehicles (PPI): Motor Vehicles +0.05% m/m; Machinery +0.13% m/m — Section 232 auto tariffs began in April–May 2025, but producer prices remain essentially flat. Costs are being absorbed in margins and held down by competition with domestic producers, not passed on to consumers.
Steel & Aluminum: +0.4% m/m — Even after Section 232 duties were doubled from 25% to 50% in June 2025, processed metal prices moved only modestly, with no inflation spike.

And history confirms this pattern. A 2023 U.S. International Trade Commission study on the original 25% steel and 10% aluminum tariffs (2018–2021) found that domestic steel prices rose just 0.7%, while domestic production climbed 1.9% [20]. In other words, tariffs helped stabilize U.S. industry without creating meaningful inflation — exactly the opposite of the myth.

Why PPI matters: The Producer Price Index (PPI) often serves as an early signal for movements in the Consumer Price Index (CPI). Producer prices capture changes in production costs, which are a core input into overall supply and inflation dynamics. Given the PPI fell by 0.1% m/m in August, future CPI inflation is unlikely to accelerate, since the cost base feeding into consumer goods is flat.

Conclusion

The August inflation report cuts through the noise: tariffs are not driving U.S. inflation. Headline CPI remains moderate, and the real drivers are housing shortages, energy demand, and food supply shocks.

Economists who claim tariffs equal higher inflation are misreading both history and current data. Imports are a small share of GDP, tariffed goods are showing average or flat inflation, and manufacturers are steady with stable prices and stronger domestic output.

The myths collapse under the numbers. Tariffs are not an “economic disaster.” They are a strategic tool that can coexist with stable inflation and strengthen U.S. production. Today’s inflation comes from housing, food, services, and energy — not tariffs.

REFERENCES:

[1] National Mortgage Professional, “U.S. Housing Shortage Hits Record High.” 2025. https://nationalmortgageprofessional.com/news/us-housing-shortage-hits-record-high-analysis

[2] Federal Reserve Bank of St. Louis (FRED), “30-Year Fixed Rate Mortgage Average in the United States (MORTGAGE30US).” 2025. https://fred.stlouisfed.org/series/MORTGAGE30US

[3] International Air Transport Association (IATA), “Jet Fuel Price Monitor.” 2025. https://www.iata.org/en/publications/economics/fuel-monitor/

[4] Acron Aviation Academy, “Analyzing the Pilot Shortage by the Numbers.” 2025. https://acronaviationacademy.com/usa/blog/analyzing-pilot-shortage-by-the-numbers/

[5] Yahoo Finance, “Summer 2025 Travel Demand Appears Strong.” 2025. https://finance.yahoo.com/news/summer-2025-travel-demand-appears-190000352.html

[6] Tri-State Livestock News, “New Census Shows Cattle and Sheep Industries Continue Steep Declines.” 2025. https://www.tsln.com/news/new-census-shows-cattle-and-sheep-industries-continue-steep-declines/

[7] National Groundwater Association (NGWA), “NOAA Warns Drought to Worsen in Western United States Through July.” April 29, 2025. https://www.ngwa.org/detail/news/2025/04/29/noaa-warns-drought-to-worsen-in-western-united-states-through-july

[8] U.S. Department of Agriculture (USDA), “Secretary Rollins Suspends Live Animal Imports Through Ports of Entry Along Southern Border Effective Immediately.” May 11, 2025. https://www.usda.gov/about-usda/news/press-releases/2025/05/11/secretary-rollins-suspends-live-animal-imports-through-ports-entry-along-southern-border-effective

[9] Beall Investments, “Dry Weather in Brazil and Global Supply Concerns Lift Coffee Prices.” 2025. https://www.beallinvestments.com/news/story/34776841/dry-weather-in-brazil-and-global-supply-concerns-lift-coffee-prices

[10] New York Times, “AI Data Centers Driving Up Electricity Costs.” August 14, 2025. https://www.nytimes.com/2025/08/14/business/energy-environment/ai-data-centers-electricity-costs.html

[11] BBC News, “Avian Influenza Still Impacting Egg Supply.” 2025. https://www.bbc.com/news/articles/c93npyelnewo

[12] The Beef Site, “USDA Forecasts Rising Meat, Dairy, and Egg Prices in 2025.” 2025. https://www.thebeefsite.com/news/usda-forecasts-rising-meat-dairy-and-egg-prices-in-2025

[13] The White House, “Adjusting Imports of Automobiles and Automobile Parts into the United States.” Presidential Proclamation, March 2025. https://www.whitehouse.gov/presidential-actions/2025/03/adjusting-imports-of-automobiles-and-autombile-parts-into-the-united-states/

[14] The White House, “Adjusting Imports of Aluminum and Steel into the United States.” Presidential Proclamation, June 2025. https://www.whitehouse.gov/presidential-actions/2025/06/adjusting-imports-of-aluminum-and-steel-into-the-united-states/

[15] Visual Capitalist, “Which Chinese Products Are Most Exposed to U.S. Tariffs?” 2025. https://www.visualcapitalist.com/which-chinese-products-are-most-exposed-to-u-s-tariffs/

[16] World Bank, “United States Data.” 2025. https://data.worldbank.org/country/united-states

[17] U.S. Census Bureau, “U.S. International Trade in Goods and Services: December 2024 (FT900).” February 2025. https://www.census.gov/foreign-trade/Press-Release/ft900/ft900_2412.pdf

[18] Federal Reserve Bank of St. Louis (FRED), “Commercial Bank Credit (TOTBKCRNSA).” 2025. https://fred.stlouisfed.org/series/TOTBKCRNSA

[19] Federal Reserve Bank of St. Louis (FRED), “M2 Money Stock (M2SL).” 2025. https://fred.stlouisfed.org/series/M2SL

[20] U.S. International Trade Commission (USITC), “The Impact of Steel and Aluminum Tariffs on Industries and Consumers” (Publication 5405). https://www.usitc.gov/publications/332/pub5405.pdf

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