Trade war may fuel inflation: RBI bulletin

Escalating trade tensions amid a tariff war after Donald Trump took over as President of the United States (US) could adversely impact global growth and fuel inflation, an article on the "State of the Economy" in the Reserve Bank of India (RBI) monthly bulletin said.

- MANOJIT SAHA

Citing estimates, the report said a full-blown tariff war could raise prices by 1.0-1.2 per cent in the US, reduce growth in real gross domestic product (GDP) by 0.6 percentage points in 2025, and leave the American economy persistently 0.3-0.4 per cent smaller in the long run.

"...trade wars and escalating tariffs could have a deleterious impact on growth and fuel inflation, not just in the countries directly involved but for the global economy as a whole," the article said, while observing that financial markets were increasingly pricing in the anticipated slowdown in global economic growth.

"As of March 17, 2025, the US dollar has given up all of its gains since mid-November 2024, weighed by US trade policy and growth uncertainties," the article said.