Bank of America Analysis Reveals Tariffs Drive 30-50 Basis Points of Core PCE Inflation

This analysis is based on the Business Insider report [1] published on November 3, 2025, which detailed Bank of America’s findings on tariff impacts on consumer inflation.

Bank of America analysts, led by Managing Director Aditya Bhave, have concluded there is “overwhelming evidence” that tariffs are driving consumer price increases [1]. The research indicates consumers have absorbed approximately 50-70% of tariff costs to date, with tariffs contributing 30-50 basis points to the core Personal Consumption Expenditures (PCE) inflation rate [1]. This finding aligns with broader economic research from the St. Louis Federal Reserve, which shows tariffs explain roughly 0.5 percentage points of headline PCE annualized inflation and around 0.4 percentage points of core PCE annualized inflation over the June-August 2025 period [3].

The tariff impact stems from President Trump’s “Liberation Day” tariffs unveiled on April 2, 2025, which have remained elevated on countries like China and Canada despite some trade deals with partners such as the UK and European Union [1]. This policy environment has created a structural shift in pricing dynamics, with PCE core goods prices rising 1.5% in the first six months of 2025 versus 0.3% in the same period of 2024 [4].

: The 30-50 basis point tariff impact represents approximately 11-19% of the total 2.7% core PCE inflation rate [1], making tariffs a substantial contributor to overall inflation pressures. This is not a transitory factor but a persistent structural change in the economic environment.

: Market data reveals divergent strategies among major retailers in managing tariff impacts [0]. Walmart (WMT) has shown relative strength with a 12.42% year-to-date gain, while Target (TGT) has struggled significantly with a -32.41% year-to-date decline, suggesting varying capabilities in supply chain adaptation and margin management.

: The tariff impact is expected to intensify during the holiday shopping season as initial inventory buffers diminish [5]. Companies initially built up inventories ahead of duties and absorbed impacts through compressed margins, but this protective measure is becoming exhausted.

: Consumer sectors have experienced varying impacts, with Consumer Defensive declining 0.34% and Consumer Cyclical falling 0.41% [0], reflecting different exposure levels to imported goods and varying abilities to pass costs to consumers.

: Bank of America expects the effective tariff rate to climb further [1], suggesting continued upward pressure on inflation that could complicate Federal Reserve policy decisions and potentially delay monetary policy easing.

: The 50-70% cost absorption by consumers [1] represents a significant hidden tax on American households, particularly affecting lower-income consumers who spend a higher proportion of income on goods. This could reduce discretionary spending and impact economic growth.

: Companies face pressure between absorbing tariff costs and maintaining market share through price increases. S&P Global research estimates Trump’s tariffs will cost businesses $1.2 trillion in 2025 [1], creating substantial margin challenges.

: Companies that can quickly adapt supply chains to tariff-free countries may gain competitive advantages. The current environment creates incentives for accelerated supply chain diversification and nearshoring initiatives.

: Ongoing trade negotiations could alter tariff structures, creating both risks and opportunities for businesses positioned to adapt quickly to changing trade policies.

Bank of America’s analysis provides quantitative evidence that tariffs are a major driver of current inflation, accounting for 30-50 basis points of core PCE inflation [1]. The research shows consumers bear 50-70% of tariff costs [1], creating significant economic drag that affects household purchasing power across income levels.

Current market performance reflects these pressures, with major retailers showing divergent results based on their ability to manage tariff impacts [0]. Walmart has demonstrated relative resilience while Target has faced substantial challenges, indicating varying operational capabilities in response to trade policy changes.

The inflationary impact is supported by multiple research sources, with the St. Louis Fed finding tariffs account for 10.9% of headline PCE annual inflation for the 12-month period ending August 2025 [3]. This suggests tariff effects are widespread and measurable across economic indicators.

Looking forward, the effective tariff rate is expected to increase [1], potentially amplifying these impacts. The timing coincides with the holiday shopping season when consumer spending patterns will provide clear signals about how households are adjusting to higher prices. Companies with strong supply chain flexibility and pricing power may be better positioned to navigate this environment, while those heavily dependent on imported goods from tariffed countries face continued margin pressure.