Inflation Pass-Through 2025: How Trade Shocks Reach the Consumer

Understanding Inflation Pass-Through

Inflation doesn’t arise in isolation — it spreads through trade linkages, production costs, and consumer demand chains.
The IMF’s “Inflation Pass-Through” chart reveals how tariff changes and supply disruptions affect U.S. personal consumption expenditure (PCE) prices between February and July 2025.

Each bar in the figure shows the percentage contribution of:

• 🟦 Direct effects (immediate impact of import tariffs on final goods prices)

• 🟥 Indirect effects (cost increases from imported inputs used in domestic production)

• 🟨 Observed PCE price change for the period

Figure — Inflation Pass-Through by Product Category

Highlights:

1. Household appliances, musical instruments, and luggage show the largest total pass-through — 7–8 % — indicating high import dependency.

2. Clothing categories (men’s and women’s) record moderate effects (≈ 6–7 %).

3. Jewelry and furniture exhibit smaller but noticeable indirect inflation.

4. Children’s clothing and sports vehicles show near-zero or slightly negative price changes, implying substitution effects or reduced demand.

The data suggests that tariff-driven inflation was not only sector-specific but also regressive — affecting household goods and essentials more than luxury items.

Direct vs Indirect Transmission

Inflation persists longer when indirect effects dominate — a key challenge in sectors reliant on global manufacturing networks.

Broader Global Context

• Tariff escalation and geopolitical realignments since 2024 have elevated import prices globally.

• Emerging markets faced compounded effects due to weaker currencies and energy import costs.

• The IMF estimates total trade-related inflation added 0.8 % to global consumer prices by mid-2025.

Tariffs designed to protect domestic industries often raise living costs, especially for low- and middle-income households.

Implications for Africa and Kenya

• Imported inflation: Kenya’s exposure is moderate but rising — household electronics, vehicles, and textiles are sensitive to global trade disruptions.

• Policy response: Enhancing local value addition and intra-African supply chains (under AfCFTA) can reduce vulnerability to imported price shocks.

• Monetary stance: CBK’s focus on maintaining a stable shilling helps cushion indirect pass-through effects.

A 10 % rise in shipping costs from Asia could increase local electronics prices by 3–4 % within a quarter due to high import reliance.

For DatalytIQs Academy Learners

You can replicate this IMF figure analytically:

• Use a stacked bar chart to decompose inflation by sector (direct vs indirect).

• Apply an input–output matrix to estimate second-round effects in Kenya’s manufacturing sector.

• Analyze tariff elasticities to measure price sensitivity by product type.

Data and Acknowledgment

Source: IMF World Economic Outlook (October 2025), Figure 1.7 (2) “Inflation Pass-Through.”
Acknowledgment: IMF staff calculations using Haver Analytics and U.S. PCE data.
Author: Collins Odhiambo Owino, DatalytIQs Academy