US Tariffs Have Resulted in an Inflation Paradox

Contrary to expectations, Trump's tariff hikes are yet to show up in US cost-of-living data. But these are early days yet, and trade shocks still risk setting off shudders of price instability

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Much like the dog that didn't bark in The Adventure of Silver Blaze by British crime writer and creator of Sherlock Holmes, Arthur Conan Doyle, one of the biggest puzzles after US President Donald Trump's 2 April edict of a 10% tariff on all imports is its remarkably subdued effect on inflation in America. At first, the general consensus—not limited to doomsayers—was that growth would fall and inflation rise as a direct outcome. Stagflation, or slower growth amid higher inflation, was the broad prognosis for the US economy and thence for the rest of the world's economies.

So far, what we have seen instead is a slowdown for sure—US output contracted 0.5% in the first quarter of 2025—but barely a blip on the price front. How come? It calls for a closer look at the economic dynamics at play.