Tariffs create complex inflation dynamics across economies. New research analyzing 40 years of international data reveals that tariffs initially trigger demand shocks, causing inflation to fall as consumers spend less and energy prices decline. However, this effect is temporary. Over time, inflation gradually rises above baseline levels, first through goods prices, then through more persistent services inflation. Understanding these lagged effects is critical for policymakers balancing monetary and trade policy. The U.S. tariff announcements of early 2025 have created significant economic uncertainty, making this analysis particularly relevant for forecasting inflation trajectories and policy responses.
