U.S. inflation to continue rising into 1H26: UBS

Investing.com -- U.S. inflation is set to keep climbing into the first half of 2026, according to UBS, which argues that tariffs remain a key force pushing prices higher.

In a report led by UBS economist Alan Detmeister, the firm said “increased tariffs since the start of the year have led to rising inflation,” noting that headline inflation measures are up “46bp and 70bp since post-pandemic lows in April,” while core inflation is up “24bp and 30bp.”

UBS projects “another 30bp to 40bp of increase still to come before inflation peaks in second quarter of next year before very slowly declining.”

The bank said its longer-term inflation forecast has fallen since April, driven by “reductions in the scope and the scale of the tariffs” and “lower and slower than expected pass-through of the tariffs,” particularly on vehicles.

However, UBS warned that possible tariff increases remain “an upside risk.”

The firm also urged caution around near-term data, saying “we suggest heavily discounting the November CPI” due to distortions from the government shutdown.

UBS said alternative indicators point to monthly core CPI running “in the 25bp to 30bp range over the final three months of this year before stronger increases early next year.”

UBS expects tariffs to “gradually push up inflation,” forecasting core PCE to peak at “around 3.2%” in the second quarter of 2026.

The bank said inflation is likely to stay “quite elevated through late 2026,” and remain above the Federal Reserve’s 2% target in 2027.

UBS’s projections for core PCE are “3.0% in 2025E, 2.9% in 2026E, 2.4% in 2027E,” a path it says is above consensus for 2026 and 2027.

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