Durable inflation?

Posted by: Paul Donovan

28 Feb 2025 2 min read

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Markets tend to believe that very visible trade taxes will not happen, but less visible taxes might. Things like food and fuel, which consumers buy regularly, show the damage of trade tariffs very clearly. Durable goods are bought less often and play less of a role in shaping consumers鈥� inflation perceptions. Taxing such goods carries a lower political cost.
US and UK durable goods prices are lower today than they were two years ago. In Europe, they are little changed. Shifting consumption patterns (prioritizing fun over buying goods) and long-term disinflationary trends helped cut prices, lowering headline consumer price inflation.
When a consumer buys a foreign or domestic durable good, the largest part of their spending is usually domestic labor costs. Transport, wholesale, advertising, and retail costs make up most of the price. Slowing domestic wage growth helps constrain durable goods price inflation. Automation in the retail sector means wage growth generates less cost growth.
Tariffs reduce the disinflation impulse of durable goods prices, but the starting point is benign. Ultimately, service sector prices are a far larger part of overall consumer price calculations. If raising trade taxes lowers economic growth (as is likely), weaker service sector pricing power may become a larger part of the disinflation narrative.