CPI food at home is 8% of total CPI weights, fresh vegetables and fruit are 1.1%. Assume half of fresh vegetable and fruit are imported from Mexico (about 2/3 of fresh vegetables are imported from Mexico), and assume only half of the 25% tariff is passed on to US consumers (large country assumption). Then here’s a picture of the CPI for groceries, the January USDA ERS forecast and the implied level of grocery prices, assuming the tariffs are eventually placed.
Figure 1: CPI for food at home (black), USDA Economic Research Service forecast (blue square), implied level including tariffs on Mexican food imports (red triangle). Source: BLS via FRED, ERS, author’s calculations.
The object of tariffs is to raise prices going to domestic producers, to encourage production. Hence, assuming that domestic producers don’t raise prices (as is assumed in the above calculation) seems silly — so the above is an understatement of price increase.
