UBS On-Air: Paul Donovan Daily Audio 'The wider politics of price rises'
At a Glance
UBS Chief Economist Paul Donovan argues that US January CPI will be largely unaffected by Trump's trade taxes, as tariff effects typically lag by months. The desk emphasizes that year-on-year rates are expected to remain static, and food prices—especially eggs—are a politically sensitive driver of inflation perceptions, not core policy. Consensus aligns with a near-term neutral view on USD crosses, though the egg/avocado angle may constrain tariff aggressiveness on Canada and Mexico.
Key Takeaways
- 01US January CPI expected static year-on-year; Trump trade taxes unlikely to show up for months.
- 02Food prices, especially eggs, are politically sensitive and may constrain tariff aggressiveness on Canada and Mexico.
- 03UBS sees no near-term inflation catalyst from Trump policies unless tax hikes are very aggressive.
- 04Avocado prices tied to Mexico tariffs could agitate Gen Z voters, adding political pressure.
Full Analysis
What the desk is arguing
Per the full note [UBS On-Air], Paul Donovan contends that US January CPI data, due Wednesday 12 February, will show little impact from President Trump's trade taxes. He notes that while anticipation of tariffs can occasionally raise prices, the actual inflation pass-through takes months—unless tax hikes are very aggressive, none of Trump's policies will affect first-quarter inflation.
The desk highlights food prices as a disproportionate driver of consumer inflation perceptions. Donovan cites egg prices approaching the street price of two hits of cocaine as a vivid example of how border and cost-of-living issues intertwine. He argues that visible food inflation, such as higher avocado costs from Mexican imports, may restrain tariff actions on Canada and Mexico, pointing to Trump's recent retreats in areas with clear inflation consequences.
What the calendar says
No high-impact US events appear on the calendar in the 30 days following this commentary. The next key data point is US CPI itself, which is expected to confirm a static year-on-year rate. Without a near-term catalyst, the market may remain focused on tariff headlines and their delayed inflation implications.
Market Implications
Watch USD/MXN and USD/CAD for tariff-reversal volatility; any escalation on Mexico or Canada food imports could weaken the dollar. USD/JPY may trade on broader risk sentiment rather than direct inflation readings.
From the original
US January consumer price inflation will be largely unaffected by US President Trump’s trade taxes (though prices are occasionally raised in anticipation of tariffs). Unless tax increases are very aggressive, nothing Trump does will have a bearing on first quarter inflation. Howe
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