Trump's proposed tariffs on Mexico, Canada, China will increase inflation, Goldman Sachs warns

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President-elect Trump's plan to impose a 25% tariff on all goods from Mexico and Canada while hiking the levies on products from China will drive up costs for Americans, Goldman Sachs warned this week.

Economists at the Wall Street bank wrote in a note on Tuesday that the proposal Trump floated the day before would add a tax on 43% of U.S. imports, and could push inflation higher by nearly 1%.

President-elect Trump's plan to increase tariffs on China and impose them on Canada and Mexico will drive up inflation, Goldman Sachs warned this week. (Scott Olson/Getty Images / Getty Images)

«Using our rule of thumb that every 1 [percentage point] increase in the effective tariff rate would raise core [personal consumption expenditures] PCE by 0.1%, we estimate that the proposed tariff increases would boost core PCE prices by 0.9% if implemented,» the note, written by Goldman Sachs economists Alec Phillips and Ronnie Walker, reads.

The PCE index is the Federal Reserve's favored inflation gauge. The Commerce Department reported Wednesday that it rose 0.2% in October from the month before and 2.3% year over year. Core PCE, which excludes volatile food and energy prices, rose 0.3% for the month and increased 2.8% from a year ago.

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The central bank is focusing on the PCE headline figure as it tries to bring back the pace of price increases back to its target of 2%, although policymakers view the core data as a better indicator of inflation.

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