The post Tariffs, inflation, and loss of purchasing power Commerzbank appeared com. Regular readers of our Daily Currency Briefing will already be familiar with one of my favorited charts, which illustrates market-based inflation expectations. Over the summer, I often wondered when we would see a decline in short-term expectations, i. e. those in one year’s time. Even if expectations remained unchanged, this would, by definition, mean that market participants were shifting the inflation shock further into the future. This would raise questions about how transitory this tariff-induced inflation shock really is, Commerzbank’s FX analyst Michael Pfister notes. Inflation outlook eases as US data gaps cloud picture “The tariffs announced in July were, on average, 6 percentage points lower than the figures at the beginning of April. Many of the larger US trading partners were able to reach a deal that anchors tariffs in the range of 15-20%. While this still goes hand in hand with inflationary pressure, it is unlikely to be as significant as originally thought. The majority of the tariffs came into force at the beginning of August. Assuming the tariffs are passed on to US consumers in the near future, the inflation shock is likely to drop out of year-on-year calculations in August/September next year, which should artificially lower the inflation rate.” “However, the decline has accelerated since the beginning of October, with inflation expectations for the coming year falling by just under 0. 5 percentage points. Again, one could argue that this is due to the expected transitory nature of the shock, which will pass in the coming autumn. However, I suspect there is another reason. Since the beginning of October, the US government shutdown has severely restricted the publication of new data. Although an inflation report was published for September, almost 40% of the data in it was imputed, so it is significantly less reliable than usual. In the absence of.
