Seemingly everyone wants to know: where is this tariff inflation you economists speak of? Even my pool guy asked me! We haven’t seen it yet, despite the substantial tariffs imposed by the Trump Administration. The press has been wondering about this for almost two months, and some of the MAGA faithful are celebrating the resounding success of the tariffs in this and other respects. Not so fast, grasshoppers!

There are a couple of aspects to the question of tariff inflation. One has to do with the meaning of inflation itself. Strictly speaking, inflation is a continuing positive rate of increase in the price level. Certain purists say it is a continuous positive rate of increase in the money supply, which I grant is least a step beyond what most people understand as inflation. Rising prices over any duration is a good enough definition for now, but I’ll return to this question below in the context of tariffs.

There is near-unanimity among economists that higher tariffs will increase the prices of imports, import-competing goods, and goods requiring imported materials as inputs. Domestic importers pay the tariffs, so they face pressure on their profit margins unless they can pass the cost onto their customers. But so far, since Donald Trump made his “Liberation Day” tariff announcement, we’ve seen very little price pressure. What explains this stability, and will it last?

Several factors have limited the price response to tariffs thus far:

— Some importers are “eating” the tariffs themselves, at least for now, and they might continue to pay a share of the tariffs with smaller margins.

— Cargo moves slowly: According to Neil Kashkari of the Minneapolis Fed:

“… cargo loaded onto ships in Asia on April 4 was not subject to the reciprocal tariffs, while cargo loaded April 5 was. Cargo coming from Asia can take up to 45 days to make it to U.S. ports and then must be transported to distribution centers and then on to customers. It is possible that goods from Asia subjected to high tariffs are only now making their way to customers. These two factors suggest the economic effects of increased tariffs could merely be delayed.“

— Data on prices is reported with a lag. We won’t know the June CPI and PPI until July 15, and the PCE price index (and its core measure, of most importance to the Fed) won’t be reported until July 31, and will be subject to revisions in subsequent months.

— Importers stocked up on inventories before tariffs took effect, and even before Trump took office. Once these are depleted, new supplies will carry a higher cost. That’s likely over the next few months.

— Uncertainty about the magnitude of the new tariffs. Trump has zig-zagged a number of times on the tariff rates he’ll impose on various countries, and real trade agreements have been slow in coming. This makes planning difficult. Nevertheless, inventories are likely to carry a higher replacement cost, but adjusting price creates a danger of putting oneself at a competitive disadvantage and alienating customers. Many businesses would prefer to wait for a clearer read on the situation before committing to a substantial price hike.

— Tariff exemptions have reduced the average tariffs assessed thus far to about 10%, well below the 15% official average. This will reduce the impact on prices and margins, but it is still a huge increase in tariffs and another source of uncertainty that should give importers pause in any effort to recoup tariffs by repricing.

— Importers are storing goods in “bonded warehouse“ to delay the payment of tariffs. This helps importers buy time before committing to pricing decisions.

— Kashkari notes that businesses can find ways to alter trade routes so as to lower the tariffs they pay. For example, he says some goods are being routed to take advantage of the relatively favorable terms of the free trade agreement between the U.S., Mexico, and Canada.

So it’s still too early to have seen much evidence of price pressure from Trump’s tariffs. However, that pressure is likely to become more obvious over the summer months. The expectation that tariffs should have already shown up in prices is just one of several errors of those critical of the Federal Reserve’s patience in easing policy.

Is there a sound reason to expect higher tariffs to produce a continuing inflation? Or instead, should we expect a “one-time” increase in the price level without further complications? Tariffs could generate an ongoing inflation if accompanied by an increase in the rate of money growth, or at least enough money growth to create expectations of higher inflation. Thus, if the Federal Reserve seeks to “accommodate” tariffs by easing monetary policy, that might lead to more widespread inflation. That could be difficult to rein-in, to the extent that higher inflation gets embedded into expectations.

Tariffs are excise taxes, and while they put upward pressure on the prices of imports and import-competing goods, they may have a contractionary effect on economic activity. Tighter budgets might lead to softer prices in other sectors of the economy and moderate the impact of tariffs on the overall price level.

The Fed’s reluctance to ease policy has been reinforced by another development. It’s usually argued that tariffs will strengthen the domestic currency due to the induced reduction in demand for foreign goods (and thus the need for foreign currency). Instead, the dollar has declined more than 9% against the Euro since “Liberation Day”, and the overall U.S. dollar index experienced its steepest first-half decline in 50 years. A lower dollar stimulates exports and depresses imports, but it also can lead to “imported” inflation (in this case, apart from the direct impact of tariffs). Uncertainty regarding tariffs deserves some of the blame for the dollar sell-off, but the fiscal outlook and rising debt levels have also done their part.

The upshot is that Trump’s tariffs are likely to cause a one-time increase in the price level with possibly a mild contractionary effect on the real economy. So it’s a somewhat stagflationary effect. It won’t be disastrous, but the tariffs can be made more inflationary than they “need be”. That’s why Trump is foolish to persist in haranguing the Fed for not rushing to ease policy.