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Tariff Inflation

Trading Term

Tariff inflation refers to a rise in consumer prices caused by the imposition of import tariffs, which are taxes placed on imported goods. When tariffs are applied, the cost of bringing foreign products into a country increases. In many cases, businesses respond by passing these added costs on to consumers in the form of higher prices, thereby contributing to inflation—particularly in sectors heavily reliant on imports.

Tariff inflation can distort normal supply chains, reduce consumer purchasing power, and drag on economic growth. It can also lead to retaliatory tariffs, which further disrupt trade and amplify inflationary pressure. Economists generally view tariff-induced inflation as policy-driven rather than demand-driven, and it complicates the job of central banks like the Federal Reserve, which may face pressure to respond to inflation that’s rooted in trade policy rather than the business cycle.

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