ECB’s de Guindos: Initial Inflationary Impact of Tariffs Could Be Offset by Hit to Economy

17 March 2025

By Marta Vilar – MADRID (Econostream) – European Central Bank Vice President Luis de Guindos said on Monday that the initial inflationary impact of tariffs could be offset by the weakening of economic activity.

In an interview with Spanish radio Onda Cero, de Guindos said that ‘tariffs are a tax on imported goods, but they also lower demand and … despite the initial inflationary impact of a tariff hike, this could be compensated by slower activity.’

De Guindos described the evolution of inflation as ‘positive’ and said indicators such as wage growth and services inflation were ‘all going in the right direction.’

‘However, given that uncertainty has risen, we move in a much darker situation’, he added.

Energy inflation was expected to ease further, he said, despite the high geopolitical uncertainty.

‘Food inflation has registered a slight uptick, but the most important part, services inflation, will come back to lower levels given the slowdown in wage growth’, he said.

Services inflation was the ‘fundamental element’ on which the ECB based its assessment of whether inflation would converge to 2%, he said.

He warned that financing European defence spending with debt issuance could trigger an increase in medium- and long-term bond yields, while the ECB can only impact short-term rates.

‘That’s why it is very important to guarantee that you will maintain a sustainable fiscal path on the medium term’, he said. ‘Otherwise, we will pay for that via a rise on interest rates that would impact investments, consumption, etc.’