ECB research published in a blog post argued that tariffs are more likely to drag on inflation than fuel it, as the hit to demand outweighs any inflationary impact from disrupted supply chains. ECB economists found that weaker export demand exerts a net disinflationary effect on the Eurozone economy.
According to the study, a tariff-related shock that reduces Eurozone exports to the US by 1% ultimately lowers the consumer price level by around 0.1%, with the effect peaking roughly one and a half years after the shock. The analysis comes as trade data already show material deterioration. In the latest three months for which figures are available, Eurozone exports to the U.S. were down around 6.5% compared with a year earlier.
For policy, the ECB noted that sectors hit hardest by tariffs — including machinery, autos and chemicals — are also among the most sensitive to interest rate changes. Output in these industries may fall sharply after trade shocks, but responds strongly to lower borrowing costs.
“We find that this pattern holds for about 60% of the sectors we study – representing roughly 50% of total average euro zone industrial output and of total goods exports to the United States,” the economists said.
