The tariff inflation story just took a body check

Look at the miss: import prices 0.8% MoM vs 2.3% expected. That is a 1.5 percentage-point undershoot in the month the entire hawk camp was braced for tariff pass-through to finally show up in the data. It did not. And last month's 1.3% just decelerated to 0.8% � the trajectory is wrong for the "tariffs equal runaway imported inflation" story.

Three mechanisms, pick your poison

Foreign exporters are eating the tariff to defend US market share. Dollar strength is absorbing the hit on invoicing. Or US demand is softer than consensus thinks and importers cannot pass prices through. Probably some of each. All three are disinflationary at the border.

Export prices ticked 1.6% vs 1.5% expected � a nothing-beat � but combined with the import miss, US terms of trade improved. That is a quiet positive for real purchasing power nobody will talk about on the tape today.

What it means for positioning

The hawk argument that tariffs keep the Fed locked up just got weaker. Rate-cut odds should firm at the margin. Dollar: mild negative on the dovish read, offset by better terms of trade � call it a wash. The front end should outperform the belly if anything moves.

The trap

Do not confuse disinflation at the border with disinflation everywhere. Services CPI is its own animal and it does not care about import prices � wages, shelter, and insurance drive that print, and none of them got easier this month. But on today's tape, the stagflation-via-tariffs crowd lost a round.

I have been skeptical of the "tariffs force the Fed to stay restrictive" framing for months. This print is consistent with the view that tariff pass-through is absorbed along the supply chain long before it reaches the US consumer. One month is not a trend. But the narrative just got harder to defend.