What are the impacts of tariffs on inflation in euro area?

Donald Trump honored promises by announcing a new wave of tariffs. The "liberation day" proclaimed by the American president resulted in the implementation of new trade barriers. Donald Trump announced the establishment of reciprocal tariffs representing half of the taxes (tariffs, non-tariff measures, and others) imposed on American products. The luckiest countries will face a minimum rate of 10%. For products from the European Union, American tariffs have been raised to 20%. The European Union's response, to be completed , will have a direct impact on import prices . In this report, we examine the various channels through which fluctuations in import prices influence consumer prices. The direct effect of the increase in tariffs on consumer prices would lead to an annual inflation rate rising to an average of 2.9% in 2025 , compared to 2.1% in the absence of tariffs . It should be noticed that this is the top end of the estimation range due to the the assumption of full transmission of the increase in tariffs on import prices first ly , and of the increase in import prices on consumer prices and secondly . A transmission of 70% of the tariff increase would mitigate the impact on annual inflation by 0.4 p.p. Moreover, a set of downward factors presented in this report, such as freight and raw material prices, as well as the effect on terms of trade, suggests a lower impact in the context of a negative demand shock . We thus expect a scenario of euro area inflation at 2.6% in 2025 and 2.4% in 2026 , which we will adjust depending on subsequent events .