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How Much Do Import Prices Really Affect What You Pay?

The link between global trade and domestic inflation

When import prices surge—whether from tariffs, supply chain disruptions, or currency fluctuations—how much of that increase actually shows up in the prices consumers pay at the store? This question has become increasingly important in our globalized economy, especially as policymakers debate trade policy and try to forecast inflation.

The 20-30% Rule

A robust finding in economics research is that import price passthrough to consumer prices in the United States is around 20-30%. This means that if import prices increase by 10%, consumer prices typically rise by 2-3%.

Key studies establishing this benchmark include:

  • Campa & Goldberg (2005): Found 25% passthrough for the US over 1975-2003
  • McCarthy (2007): Estimated 20-30% passthrough using structural VAR models
  • Forbes et al. (2018): Confirmed approximately 20% passthrough remains stable
  • Gopinath (2015): Showed passthrough depends on currency of invoicing, with similar ranges for the US

But Passthrough Changes Over Time

My analysis of over 40 years of US data (1982-2025) reveals that passthrough is not constant—it varies significantly across different periods:

Figure 1: Time-varying import price passthrough to CPI inflation.

Key Findings:

  1. Historical Average: 16.1%
    • Over the full 1982-2025 period, the average passthrough has been slightly below the literature consensus
    • This suggests the US has been relatively insulated from import price shocks
  2. The Post-COVID Surge: 43.6%
    • Recent estimates (2024-2025) show passthrough has jumped to an unprecedented 43.6%
    • This is nearly double the literature benchmark and 2.7x the historical average
    • The highest level recorded in our 43-year sample
  3. Dramatic Variation Across Decades
    • 1990s Decline: Passthrough fell dramatically during the era of globalization and the "Great Moderation"
    • Mid-2000s Recovery: Passthrough increased during the commodity price boom
    • 2010s Stability: Remained relatively low and stable around 15-20%
    • 2020s Volatility: Extreme swings with the COVID-19 shock and recovery
  4. Recession Patterns (shown in gray bars)
    • The 1990-91, 2001, 2007-09, and 2020 recessions all coincide with notable changes in passthrough
    • Post-recession periods often see elevated passthrough as supply chains adjust

What Does This Mean?

The current 43.6% passthrough rate is exceptionally high by historical standards. This has important implications:

For Consumers:

When import prices rise by 10% today, consumer prices might increase by 4-5%, compared to just 1.5-2% during the low-passthrough 2010s. This amplifies the impact of global commodity prices, exchange rates, and trade policy on household budgets.

For Policymakers:

The elevated passthrough means:

  • Import-driven inflation is more potent than in recent decades
  • Trade policies (tariffs, quotas) will have larger effects on consumer prices
  • Exchange rate fluctuations matter more for domestic inflation
  • Monetary policy may need to respond more aggressively to external price shocks

For Businesses:

Higher passthrough suggests:

  • Companies are passing costs through rather than absorbing them
  • Pricing power has increased relative to the 2010s
  • Import-dependent industries face greater margin pressure

Why Has Passthrough Increased?

Several factors may explain the recent surge:

  • Supply Chain Fragmentation: Post-COVID supply chain disruptions reduced competition and increased costs
  • Deglobalization Pressures: Reshoring and "friend-shoring" may reduce competitive pressures that previously limited passthrough
  • Energy Price Volatility: Oil and natural gas price swings affect both import costs and broader inflation
  • Labor Market Tightness: Strong wage growth gives firms more room to pass through costs
  • Changed Inflation Expectations: After years of low inflation, higher inflation expectations may facilitate price increases

The Bottom Line

While the literature consensus of 20-30% passthrough provides a useful benchmark, my analysis shows this relationship is far from stable. The current period features the highest passthrough in over 40 years—a critical fact for understanding inflation dynamics in 2024-2025.

As global trade patterns continue to evolve and geopolitical tensions reshape supply chains, monitoring import price passthrough will be essential for both forecasting inflation and evaluating the real-world impact of trade policy decisions.

Methodology Note

This analysis uses monthly US data from 1982-2025, employing a 60-month rolling window estimation approach. Import prices are measured using the Bureau of Labor Statistics' Import Price Index, while consumer prices use the Consumer Price Index (CPI-U). The methodology controls for lagged effects and employs heteroskedasticity and autocorrelation-consistent (HAC) standard errors. Results are corroborated using local projections methods.

Data sources: Federal Reserve Economic Data (FRED), Bureau of Labor Statistics
Analysis period: September 1982 - August 2025

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