Morgan Stanley warns: U.S. inflation may soar to 5% in the second half of the year, with cost transfer and industry allocation becoming the focus

According to the latest research report from JPMorgan Chase, the dynamics of inflation in the United States are facing a critical turning point. On one hand, the actual tariffs imposed in the U.S. have quietly risen from 2.3% at the beginning of the year to about 13%. If subsequent industry-specific tariffs are implemented, the effective tax rate for the year may approach 20%. On the other hand, although the overall CPI in the U.S. remained low at 2.4% in May, economists warn that the annualized inflation rate will soar to 5% in the second half of the year. This prediction is closely related to the current market's lagging response to tariff policies and oil prices. Inflation Lag: The Strategic Game Between Oil Prices and Enterprises The current phenomenon of inflation being dulled by rising tariffs mainly stems from the suppressive effect of soft oil prices. Brent crude oil prices have fallen year-on-year and have a strong correlation with the U.S. CPI, but its favorable impact is gradually fading. Since April, oil prices have been rising month by month, and if this trend continues, it may become one of the driving forces behind rising inflation. JPMorgan Chase's analysis indicates that initially, companies chose to internalize tariff costs due to concerns about consumer acceptance of price increases and the need to maintain market share. However, over time, some companies have begun to tentatively pass on costs. For example, Japanese manufacturers in the automotive industry recently announced price increases, luxury brands have raised prices by an average of mid-single digits, and technology hardware companies are leveraging their bargaining power to transfer cost pressures. Economic Impact: The Dollar's Trend and the Transmission Chain of Import Inflation The report predicts that the dollar may rebound in the short term, but will remain weak in the medium term (second half of the year). This judgment is based on historical patterns: a mid-term weak dollar often accompanies rising import inflation. If the dollar continues to depreciate, rising prices for imported goods may further push up the CPI, forming a closed loop of "tariffs-exchange rates-inflation." Industry Strategy: Cautious on Energy, Optimistic on Minerals, and Divergence in Industry JPMorgan Chase holds a conservative view on the energy sector, believing that mining companies have more investment value, and reiterates a "double upgrade" rating for this sector. The logic behind this is that a weak dollar combined with low global metal inventories will benefit the profitability of mining companies. The industrial sector, however, shows divergence: although most companies have hedged tariff costs through price increases, some companies may face profit squeezes in the short term due to products already sold or limited price adjustments. Future recovery will depend on the efficiency of supply chain adjustments. Corporate Response: From Internal Digestion to Supply Chain Reconstruction Corporate strategies exhibit three stages: initially focusing on internal digestion, mid-term attempts at price adjustments, and long-term shifts towards supply chain optimization. Typical cases include H&M (HNNMY.US) dynamically adjusting pricing strategies, Inditex (IDEXY.US) leveraging global procurement to diversify risks, and steel giant ArcelorMittal quantifying tariff costs (approximately $800 million/year, accounting for 10% of EBITDA) while benefiting from rising U.S. steel prices. These cases show that companies are balancing cost pressures and market competitiveness through diversified layouts. Conclusion: Market Game Amid Rising Inflation The core of JPMorgan Chase's strategy is that the rebound in inflation is not driven by a single factor, but is a comprehensive result of oil prices, corporate behavior, and exchange rate fluctuations. Its industry allocation recommendations highlight a preference for resource-related assets while warning of short-term pain in the industrial sector. For investors, it is essential to closely monitor companies' ability to pass on costs and the resilience of supply chains to seize structural opportunities amid rising inflation