ECB: Tariffs Pose a Threat to Global Inflation; Growth Outlook Has Worsened

2 May 2025

By David Barwick – FRANKFURT (Econostream) – The imposition of tariffs by the US could lead to higher inflation globally, the European Central Bank said on Friday.

In its third economic bulletin of 2025, the ECB said that the disinflation process in Europe was ‘well on track’ and that ‘[m]ost measures of underlying inflation are pointing to a sustained return of inflation to the ECB’s 2% medium-term target.’

The ECB noted 1Q’s quarterly decrease in annual wage growth and the decline in unit profits that it said was continuing to mitigate the inflationary pressure coming from wages.

Underlying inflation developments had generally been consistent with a return to target, the ECB said.

‘Although the indicator for domestic inflation, which mostly covers services items, remained at a high level [in March], it had been gradually easing since December 2024 and stood at 3.9% in March’, he said.

The ECB cautioned however that ‘the shift towards higher tariffs in US trade policy poses risks to the global inflation outlook.’

‘On the one hand, trade tariffs, subsequent retaliation by other countries and disruptions to supply chains could push inflation upwards if the added costs are not absorbed in profit margins’, it said. ‘On the other hand, weakening demand due to lower real incomes and elevated uncertainty could counteract the direct inflationary effects of tariffs.’

As for growth, prospects in the euro area had worsened due to trade tensions, the ECB said.

‘Increased uncertainty is likely to reduce confidence among households and firms, and the adverse and volatile market response to the trade tensions is likely to have a tightening impact on financing conditions’, it said.

This would dampen activity in the current quarter, it said.

‘At the same time, the euro area economy has been building up some resilience against global shocks’, the ECB continued, pointing to strong labour markets, risen real incomes and ‘gradually more affordable credit’.

Government spending on defence and infrastructure would support manufacturing, it said.

The bulletin's summary of economic, financial and monetary developments essentially repeated word-for-word the monetary policy statement of April 17, when the ECB cut rates by a further 25bp.