The specter of inflation looms large as U.SPresident's threats to impose tariffs on trade partners reverberate through global marketsLong before he took office, rising consumer prices were already a pressing concern across various regions of the worldThe recent measures targeting China are a stark confirmation that these threats are not just empty rhetoricInstead, they catalyze a chain reaction reminiscent of dominos falling, leading analysts to question how much longer global deflationary pressures can hold.

According to the head of global macro research at Rabobank, Elwin de Groot, tariffs are unequivocally inflationaryThey exacerbate lingering effects from past inflationary shocks and present significant structural challenges, including an aging population and climate changeWith few reasons to believe that inflation will remain low indefinitely, the implications of such policies are troubling.

Currently, there are no signs that China has felt the brunt of the tariff impactsHowever, the United States is already grappling with potential domestic and international inflationary pressuresIn the U.S., the very policies and threats to raise tariffs are pushing bond yields higher, while a resilient labor market keeps the Federal Reserve on high alertFed Chair Jerome Powell remarked last week that the possibility of increased tariffs complicates the economic outlook significantlyOn Tuesday, Morgan Stanley abandoned its prediction for a rate cut in March, opting instead to reassess its inflation forecasts.

Simultaneously, a survey conducted by Bank of America in January indicated that global price growth has resurfaced as a pivotal theme for 2025. The World Bank also forecasts a slowdown in inflation but warns that it might be more persistent than anticipatedThis assertion highlights a critical tension between expectations and reality in the current economic environment.

Across the Atlantic, the potential for U.S. tariffs to trigger significant trade reactions cannot be overlooked

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To mitigate market panic, policymakers are attempting to downplay the impact of tariffs on pricesEuropean Central Bank President Christine Lagarde expressed that she is not “overly concerned” about imported inflation, while Bank of England Governor Andrew Bailey noted the unpredictability of tariff impacts.

Nevertheless, inflation in the Eurozone unexpectedly accelerated in JanuarySales price expectations in the services sector surged to their highest level in nearly a year, while manufacturing sales prices hit their highest point in two yearsMarket reactions tend to be immediate and sharp, unlike the more measured responses from policymakersAccording to a Bloomberg survey, most economists are increasingly worried about mid-term price pressures exceeding 2%. These concerns are not unfounded; they stem from a thorough analysis of the current economic landscape and the implications of tariff policies.

In the UK, the Bank of England's survey of small and medium enterprises indicates that wage growth and output costs are set to rise over the next yearAnother report released on Wednesday revealed that a quarter of service companies have raised prices due to wage increases expected in early 2025. This series of data underscores that inflationary pressures triggered by tariffs are beginning to permeate the UK’s real economy, gradually translating from the cost side of businesses to the prices of goods and services, ultimately affecting consumer living costs.

While uncertainty still surrounds the U.S. tariff measures, the negative consequences are already becoming evidentThis approach not only exerts direct pressure on prices but also weakens global economic growth by curtailing trade activities and disrupting supply chainsJust weeks ago, the Bank for International Settlements issued a warning that the President's tariff policies could incite a wave of stagflation globallyStagflation—a dreaded economic state of stagnation coupled with inflation—could spell disaster for the global economy

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