Key Points

  • Eight out of 10 corporate economists expect U.S. tariffs to boost inflation this year, Wolters Kluwer said Monday, as the Trump administration intensifies trade policy adjustments with a 25% tariff on steel and aluminum imports.
  • A Wolters Kluwer survey found that economists at companies from Ford Motor to Morgan Stanley, KPMG, and Eaton raised their forecast for this year's consumer price index increase to 2.7% from 2.5% in October.
  • Tariff threats "could raise inflation expectations in an economy that has just experienced its fastest inflation in over 40 years," said Sandy Batten, senior economist at Haver Analytics, in a statement. Additionally, import tariffs "could trigger a trade war, thereby slowing economic growth."

In-Depth Analysis

Based on the average forecast of 46 surveyed economists, the personal consumption expenditures price index excluding food and energy—the Federal Reserve's preferred inflation gauge—could rise by an average of nearly 2.7% over the four quarters starting in April.

The Federal Reserve's efforts to bring inflation down to its 2% target have stalled for months. According to data from the Bureau of Economic Analysis, the core PCE index rose 2.8% last year.

"Inflation remains above target with risks skewed to the upside," BofA Securities analysts said in a note to clients Monday. "The impact of policy changes on inflation could materialize in the second half of 2025, although additional tariffs in the coming weeks could bring that timeline forward."

President Donald Trump has dismissed inflation risks and said tariffs will create jobs, spur investment, and help reduce the federal debt.

However, many economists believe import tariffs do more harm than good.

"Historical evidence suggests that tariffs raise prices and reduce the quantity of goods and services available to U.S. businesses and consumers, leading to lower incomes, reduced employment, and lower economic output," the Tax Foundation said this month.

Trump last week suspended a 25% tariff on imports from Mexico and Canada until March 4 after discussions with leaders of both countries. The same day, Beijing imposed retaliatory tariffs on U.S. imports in response to Trump's announced 10% tariff on Chinese imports.

Trump announced sweeping tariffs on steel and aluminum imports Monday, effective March 4. He also said he would impose reciprocal tariffs on U.S. trading partners this week.

Joanne Hsu, director of the University of Michigan's consumer survey, said consumers are increasingly concerned that tariffs will intensify price pressures.

"Many consumers appear to be concerned that high inflation will make a comeback within the next year," Hsu said Friday. She noted that survey interviews had concluded by Tuesday.

Expectations for inflation over the next year rose to 4.3% this month from 3.3%, she said, "the highest reading since November 2023, and the second consecutive month of unusually large increases."

The median expectation for inflation over the next five years rose to 3% last month from 2.7% in December, the New York Fed said Monday, citing its Survey of Consumer Expectations. Expectations for one-year and three-year horizons both remained unchanged at 3%.

Federal Reserve officials closely monitor consumer inflation expectations, concerned that such sentiment could become a self-fulfilling prophecy.

Ed Yardeni, president of Yardeni Research, said in a research note to clients that Trump's reciprocal tariff threat "scared the bond market last Friday," pushing yields higher.

"That's because higher tariffs will cause at least a one-time spike in consumer prices, which could trigger a new round of inflation," he said.

The yield on the 10-year U.S. Treasury note—a benchmark for borrowing costs—stood at 4.5% Monday, little changed from Friday.

Editor's Note: This article has been updated to reflect Trump's tariff actions on Monday.