UBS On-Air: Market Moves UBS On-Air: Paul Donovan Daily Audio 'Tariff affordability'
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Mar 5, 2026 Discussion of a confirmed 15% US tariff and why markets had already priced it in. Examination of how tariff composition affects inflation persistence without detailing conclusions. Talk about household perceptions of affordability and the focus on everyday purchases. Coverage of a sudden gasoline price spike and signs of opportunistic pricing. Notes on China’s lower growth target and its export reliance.
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15% Tariff Backed By Treasury Raises Credibility
- A likely rise to a 15% US import tariff is now credible because a Treasury official backed the President's declaration.
- Paul Donovan notes markets had already modelled 15% as a scenario and that tariff structure changes may keep inflation higher for longer.
Tariff Pass Through Is Asymmetric And Inflationary
- Tariff increases affect consumer prices asymmetrically because tariff reductions rarely pass back to consumers the way increases do.
- Donovan argues this asymmetric pass-through could keep measured inflation rates elevated even if net tariff level is similar to prior illegal tariffs.
High Frequency Prices Drive Affordability Perceptions
- Inflation perceptions matter more for affordability than the precise inflation reality because households focus on high-frequency purchases.
- Donovan highlights rising retail gasoline (up ~7 cents, then spikes near 20 cents) as a visible price that shapes consumer sentiment.