Pantheon Macro says pass-through of tariffs to core goods prices only 1/3rd complete

Pantheon Macroeconomics argues that tariffs remain the primary force behind August’s stronger inflation print, with only about one-third of the ultimate price impact yet reflected in consumer data.

Pantheon expects the tariff effect to peak later this year, setting the stage for softer services inflation and notable Federal Reserve rate cuts in 2025. 

The August consumer price index (CPI) came in at +0.4% on Thursday, above expectations of 0.3%, while core CPI climbed 0.3%, matching consensus. 

The investment institution noted that core goods prices increased 0.28%—the largest gain since May 2023—driven by higher vehicle costs and a 0.5% rise in apparel. Electronics also advanced modestly, though cellphone and prescription drug prices, both tariff-exempt, continued to decline. 

"We now judge that about one-third of the likely final boost to core goods prices from the tariffs has filtered through," Samuel Tombs, chief U.S. economist at Pantheon Macro, said.

On the services side, price gains were uneven. Core services excluding rents rose 0.35%, led by a 5.9% jump in airfares and a 2.3% rebound in hotel rates. Yet, Pantheon expects limited scope for further big moves as supply conditions normalize. Its “core-core services index,” which excludes volatile categories, slipped 0.1%, leaving its inflation trend steady near 3%. 

The firm also spotlighted that shelter costs firmed, though forward-looking rent indicators point to easing ahead. 

Pantheon estimates the Fed’s preferred gauge, the core PCE deflator, rose 0.22% in August, keeping annual inflation at 2.9%. The firm also maintains its call for 150 basis points of Fed rate cuts over the next 12 months, including 75 bps by year-end.

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