Dallas Fed: After Q1 Inflation, New Tariff Rules Awaited

SECAUCUS, NJ (DTN) — The initial shock to U.S. prices from realized tariff changes peaked in the first quarter of 2026, with the path to future inflation highly contingent on forthcoming rules, the Dallas Federal Reserve says in an analysis.

Researchers at the Texas division of the U.S. central bank say any further strengthening of core goods inflation would likely be inconsistent with the direct impacts of the 2025 tariff changes alone.

Instead, such movements would likely reflect tariff-driven spillovers or other external factors maintaining upward pressure on goods prices, the Dallas Fed notes in the analysis published on May 5.

According to Bureau of Economic Analysis data, the core PCE price index — the Fed’s preferred gauge for inflation stripped of volatile food and energy prices — remained elevated during the first quarter of 2026.

Core PCE rose 3.2% year-on-year in January, remaining at that level in February, before moderating a shade at 3.1% in March.

That came after the Trump administration imposed sweeping tariffs ranging from 10% on most global imports to 60% on goods from China and 100% on Mexican-made vehicles. Certain branded pharmaceuticals also faced rates as high as 100% depending on onshoring agreements.

The Dallas Fed said gauging the future impact is complicated by a Supreme Court decision on the International Emergency Economic Powers Act, which overturned the continued imposition of many 2025 trade levies. This legal shift has introduced a period of transition for importers and retailers.

Market participants were also focused on the Trump administration’s plans to introduce an alternative tariff structure based on the Supreme Court decision, the Dallas Fed observed, adding that this new framework will likely influence moving goods prices.

The timing of future price impacts will depend heavily on when firms incur actual costs at the border under the new rules, the Dallas Fed concluded, adding that the “realized rate” of pass-through continued to be a more accurate predictor of consumer price changes than policy announcements alone.