What Imports to Import Prices?

This study offers new insights into exchange rate pass-through (ERPT) using U.S. import price indexes by country-of-origin, covering two decades of monthly data. Focusing on the largest U.S. trading partners, our analysis shows that ERPT is more muted than previously estimated, with freight costs having no measurable impact on import prices and foreign production costs exerting only limited influence. We also observe significant heterogeneity in countries’ short-run responses, shaped by differences in trade composition and pricing strategies. Consistent estimates across common dynamic panel estimators underscore the robustness of these findings. The results suggest that exchange rate fluctuations may have a weaker direct effect on U.S. inflation than earlier studies implied, underscoring the need to reconsider current models of pricing behavior and inflation dynamics.