Major Bank Says Tariffs Will Likely Push Inflation Higher in the Second Half of 2025: 5 Ways To Prepare Now

J.P. Morgan Global Research forecasts core Personal Consumption Expenditures (PCE) inflation to reach a 4.6% annualized rate in Q3 2025, driven by the delayed impact of recently implemented tariffs, which are expected to fully manifest over the next two to four months. This anticipated inflationary pressure, disproportionately affecting sectors like clothing and textiles with significant price increases, is also contributing to a tightening labor market as companies reduce hiring amidst cost uncertainty.

Analysis

J.P. Morgan Global Research projects a significant re-acceleration of inflation, forecasting core Personal Consumption Expenditures (PCE) to reach a 4.6% quarterly annualized rate in Q3 2025. This expected rise is attributed to the delayed impact of recently implemented tariffs, with peak effects anticipated within the next two to four months, mirroring the 2018-19 experience. The corporate impact is already materializing, as evidenced by General Motors' reported $1.1 billion revenue loss in a single recent quarter, suggesting that cost-sharing with consumers through price hikes is imminent. Sector-specific analysis from Yale's Budget Lab indicates a disproportionate impact on consumer goods, with potential short-term price increases of up to 39% for shoes and 37% for apparel, which are expected to remain 18% higher in the long run. Concurrently, these cost pressures and economic uncertainty are contributing to a tightening labor market, as companies reportedly reduce hiring, creating a challenging macroeconomic scenario of rising costs and weakening job security.

Key Decisions for Investors

• Investors should reassess exposure to the consumer discretionary sector, particularly apparel, auto, and electronics retailers, which face significant margin pressure and potential demand destruction from tariff-driven price hikes.
• Closely monitor companies with heavy reliance on international supply chains, such as General Motors, for evidence of their ability to pass on increased costs without eroding sales volumes and market share.
• Consider rotating into more defensive positions, prioritizing companies with strong pricing power and predominantly domestic supply chains that are better insulated from the direct inflationary shocks of trade policy.