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Analysts at TD Securities suggests that as the third $200bn batch of Section 301 tariffs on China has been announced by the Trump Administration, but they expect US inflationary impacts to be modest, along with negative growth impacts.

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“The finalized tariff list still targets a minority share of consumer goods and an even smaller share of the CPI basket. Import market share of the targeted goods is relatively small, and pass-through from capital and intermediate goods prices, which will bear the brunt of the tariff impact, is also low for the relevant categories.”

“We estimate that, at most, the tariffs could add 0.2-0.3pp on US core CPI within 6-12 months. Our base case, however, is that they are likely to only contribute around 0.1pp. The impact on core PCE inflation should be marginally smaller.”

“Any inflationary impacts will have important offsets. For one, disinflationary forces remain in play for core goods prices, which have deflated outright for the past several years.”

“Further, lower global commodity prices and USD appreciation, as a result of trade wars, has deflationary consequences. All told, these factors could easily wipe out positive price impacts.”

“In our view, Fed officials are likely to look past the tariff impacts upon inflation, which will raise annual inflation rates for a 12-month period, as a temporary cost shock “” provided inflation expectations remain reasonably well anchored. Indeed, the risk from a sizable increase in tariffs is that they ultimately could depress sentiment, damage supply chains, and result in cuts to capex and hiring. If large enough, these effects might result in a dovish tilt to Fed policy.”

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