In the first five months of 2025, the U.S. government collected $68.9 billion in tariffs and excise taxes, as the Yale Budget Lab reports the effective tariff rate surged from 2.4% in 2024 to 19.4% by July 23, 2025. With duties now at their highest level in recent history and inflation remaining stubbornly elevated, durable‑goods prices, which account for roughly 11% of the consumer basket, face renewed upward pressure. Against this backdrop of tariff threats and rising input costs, the key question is how these forces will shape core inflation.
Turnleaf’s model indicates that, although headline price increases appear muted, firms are partially absorbing the burden of higher import duties. As pre‑tariff stockpiles run down and tariffs become permanent, underlying cost‑push pressures will persist and core CPI is likely to remain elevated in the next 12 months.
After the first wave of tariffs on China, Mexico and Canada in February 2025, manufacturers hesitated to raise prices. When broader retaliatory measures were threatened, they accelerated inventory accumulation in most durables including computers, electronics, fabricated metals (Figure 1A); and non‑durables such as beverages, tobacco and apparel (Figure 1B).
Figure 1A
Figure 1B
Despite a 10% baseline tariff on all imports, PPI readings for both durable (Figure 2A) and non‑durable goods (Figure 2B) have stayed largely flat. Firms drew down pre‑tariff stock and continued front‑loading to absorb tariffs on their balance sheets rather than pass them through. Once these buffers are depleted and replacement purchases reflect the full inclusive cost, Core CPI is expected to increase as tariff‑related pressure finally shows up in PPI.
Figure 2A
Figure 2B
Durable goods sales have remained essentially flat through early 2025 (Figure 3), signaling limited consumer willingness to bear higher prices. New orders rose 20%YoY in June 2025, but firms still lack the pricing power to transfer costs to consumers without further depressing demand.
Figure 3
Corporate borrowing by manufacturers, wholesalers, and retailers rose, reflecting a shift toward securing liquidity rather than funding expansion. Firms tapped financing to front‑load inventories and bolster cash reserves, prioritizing balance sheet strength over new capital investments (Figure 4).
Figure 4
This precautionary behavior also shows up in money markets. During the initial tariff scares, the market bid aggressively for four‑week Treasury bills, accepting yields well below the effective federal funds rate (Figure 5). In late June 2025, as Chinese‑import exclusions neared expiration and quarter‑end issuance spiked, the four‑week yield plunged nearly 50bbp below the policy rate before rebounding to a 25bbp discount after an administrative extension. That temporary squeeze pulled demand forward and nudged down consumption and restocking. Once exclusions were extended, cost‑push pressure subsided and firms unwound their cash hoard.
Figure 5
Banks’ own cash‑asset growth mirrored these swings, rising 1–2% in Q1, surging into double digits in May, collapsing into negative territory in early July, and settling at 3–5% by July 2025 (Figure 6).
Figure 6
These fluctuations reflect corporate liquidity hoarding amid tariff uncertainty, tight credit conditions, and muted demand, which together conceal underlying input cost pressures. Firms are locking in elevated import costs on their balance sheets, but lack the pricing power to pass those costs on to consumers, resulting in a core CPI that remains elevated even as economic growth slows (–0.5 percent in 2025 Q1). The fundamental cost‑push pressures have not dissipated; they are simply obscured by the decelerating pace of growth, leaving risks to core inflation intact. Turnleaf projects Core CPI to remain elevated around 2.5% through mid-2026, but with the full pass-through of tariffs unrealized and trade deals continuing until August 2025, upside risks remain (Figure 7).
Figure 7: Turnleaf Analytics United States Model – Forecast Progression Plot Core CPI YoY NSA