ECB’s Knot: Impact of US Tariffs Likely More Inflationary as Time Passes

9 April 2025

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Klaas Knot said on Wednesday that it was likely that as time went by the inflationary impact of US tariffs would dominate.

In a panel discussion at the Conference on globalisation and geo-economic fragmentation organised by Bruegel and De Nederlansche Bank, which he heads, Knot said that ‘as of today the disinflation is almost completed.’

When asked about the impact of US tariffs on inflation, Knot said there was an analogy with the shock generated by the pandemic.

‘Probably on the short run the most important and dominant shock is a negative demand shock because of the confidence effect, which would make us worry about growth, investment durable consumption’, he said. ‘And that was actually the initial impact that we were worried about in the pandemic.’

A trade war was a ‘stagflationary shock’ and its impact would depend on retaliation and the extent to which Europe would be affected by the redirection of cheap products coming from countries affected by tariffs, he said.

‘It is likely that as time progresses, the impact will become more inflationary rather than deflationary, and definitely if you then also add to the picture the change in fiscal policy in Germany and the rearm programme of the EU where we will have more fiscal spending again’, he said.

Had this shock not happened, the ECB would be ‘close to running our small victory lap, because disinflation is absolutely well on track, rates are almost back to neutral or at least at the upper range for neutral’, according to Knot.