ECB's Cipollone sees disinflationary implications of US tariffs for Europe in near term

According to Piero Cipollone, a member of the Executive Board of the European Central Bank (ECB), US trade duties could curb inflation in the eurozone in the near term by slowing the global economy.

As the official noted, the effect of Donald Trump's tariffs on Europe will be disinflationary over the short and medium term amid an increase in real rates and a stronger euro.

At the same time, Cipollone warned that the US trade policy could reduce the efficiency of the economy due to the reallocation of resources from high-productivity sectors to low-productivity ones, just like it had occurred in the 20th century.

The European financial regulator's officials are optimistic about inflation dynamics and are preparing for a further reduction in the borrowing costs. Given the observed slowdown in the European economy, markets expect two or three more rate cuts this year.

The euro's strengthening after President Donald Trump's tariff announcement came as a surprise to officials. According to Cipollone, the eurozone has benefited due to an influx of funds into the euro as a new “safe haven asset.”