--- title: "Shenwan Hongyuan: U.S. inflation in 2026 may show a \"high first, low later\" characteristic" type: "News" locale: "en" url: "https://longbridge.com/en/news/273288638.md" description: "Shenwan Hongyuan released a research report stating that U.S. inflation may exhibit a \"high first, low later\" characteristic in 2026. In the first half of the year, inflation may be more sticky due to tariff transmission and tax reduction effects; in the second half, it may welcome a favorable period of disinflation. Predictions show that if the tariff transmission rates are 90%, 70%, and 50%, the year-on-year core PCE at the end of 2026 will be 2.8%, 2.6%, and 2.5%, respectively. The Federal Reserve's monetary policy and inflation risks complement each other, and it is expected that there will be 1-2 rate cuts in 2026" datetime: "2026-01-21T22:30:05.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/273288638.md) - [en](https://longbridge.com/en/news/273288638.md) - [zh-HK](https://longbridge.com/zh-HK/news/273288638.md) --- > Supported Languages: [简体中文](https://longbridge.com/zh-CN/news/273288638.md) | [繁體中文](https://longbridge.com/zh-HK/news/273288638.md) # Shenwan Hongyuan: U.S. inflation in 2026 may show a "high first, low later" characteristic According to the Zhitong Finance APP, Shenwan Hongyuan released a research report stating that in 2026, U.S. inflation may exhibit a "high first, low later" characteristic. In the first half of the year, the tariff transmission will be the "last mile," combined with the implementation of tax cuts. If the transmission rate approaches 70%, inflation may show stronger "stickiness," while the second half of the year may be a favorable period for disinflation. The bank predicts that assuming tariff transmission rates of 90%, 70%, and 50%, the year-on-year core PCE at the end of 2026 will be 2.8%, 2.6%, and 2.5%, respectively. The Federal Reserve's monetary policy and inflation risks are complementary. If the Federal Reserve insists on a data-dependent approach, inflation risks may be controllable. In 2026, the pace of interest rate cuts by the Federal Reserve may be "delayed." In the first half of the year, the characteristics of the U.S. macro economy may be resilient growth, stable employment, and inflation peaking, leading the Federal Reserve to pause interest rate cuts; in the second half of the year, as disinflation begins, the Federal Reserve may restart interest rate cuts, totaling 1-2 times. ## Shenwan Hongyuan's main points are as follows: Since the implementation of "reciprocal tariffs," the risk of re-inflation in the U.S. is controllable and has not yet become a major contradiction in monetary policy and capital markets. Why has the inflation effect of tariffs continued to be lower than expected, and will it become an "underestimated" risk in 2026? **1\. The "inflation effect" of reciprocal tariffs: Why is it systematically lower than expected this time?** **Since April 2025, U.S. inflation has begun to rebound, but the readings have consistently been weaker than expected.** In 2025, the driving force behind U.S. "re-inflation" mainly comes from core commodity categories, while core services continue to show a cooling trend. In December 2025, the U.S. CPI year-on-year was only 2.7%, with a low point of 2.3% in April; from a month-on-month perspective, U.S. inflation has mostly been weaker than expected since April 2025. **The inflation effect of tariffs can be traced, but the transmission path is not impulsive but rather stepwise.** From the perspective of "excess" inflation and seasonality, the inflation effect of tariffs can be traced; however, the transmission path of tariffs is not impulsive. Cavallo (2025) pointed out that the upward impact of tariffs on U.S. CPI is about 0.65 percentage points. In recent months, the progress of tariff transmission has even stagnated. **The stepwise characteristics of tariff transmission are related to the path of tariff rates.** As of October 2025, the effective tariff rate in the U.S. was only 12.4%, lower than the theoretical rate of 15.7%. Transportation delays and the rush to import have temporarily hindered the increase in effective rates, but tariff exemptions and changes in importing countries may limit the increase in rates. Excluding the factor of country changes, the space for increasing the effective rate is only 2 percentage points. **2\. The "cost accounting" of tariffs: How much room do companies have to pass on tariffs?** **Companies bear more tariffs and then gradually pass them on to consumer prices, which is one explanation for the controllable inflation pressure.** The bank estimates that as of September 2025, exporters, importers, and consumers respectively bear 6%, 37%, and 57% of the tariff costs. From April to August, U.S. consumers bore only about one-third of the tariff costs, while the proportion borne by overseas exporters remained relatively small, consistent with the experience of tariff 1.0 **Why do companies bear more tariffs first after the implementation of reciprocal tariffs?** On one hand, the high uncertainty of tariff policies and the weakening of domestic demand in the U.S. are the core constraints on price increases; on the other hand, the "excess imports" hoarded by U.S. companies from April to September 2025 have delayed price increases. Historical experience from the tariff 1.0 period also shows that companies can only "temporarily" hinder price increases, and inflation will still rise "lagging behind." **Since the fourth quarter of 2025, the momentum for companies to pass on tariffs has strengthened, with "the last mile" still remaining in 2026.** The "excess" imports were exhausted by September 2025; in the third quarter of 2025, household consumption contributed 56% to U.S. economic growth, showing significant improvement; in the first half of 2026, the total amount of household tax refunds may increase by 30%, with per capita tax refunds potentially increasing by $700 to $1,000. **Three, will "re-inflation" come again? "No wind, no waves," risks may lie beyond tariffs.** **In 2026, U.S. inflation may show a "high first, low later" characteristic.** The first half of the year will be the "last mile" for tariff transmission, combined with the implementation of tax cuts. If the transmission rate approaches 70%, inflation may exhibit stronger "stickiness," while the second half of the year may be a favorable period for disinflation. The bank predicts that assuming tariff transmission rates of 90%, 70%, and 50%, the core PCE year-on-year at the end of 2026 will be 2.8%, 2.6%, and 2.5%, respectively. **What other risks exist beyond tariffs? The upward risk includes cycles and metal inflation; the downward risk includes productivity and IEEPA tariff rulings, etc.** If the U.S. economy overheats, service inflation may become more "sticky." Global metal prices soaring may push inflation through the PPI-CPI channel; on the downside, the main focus is on AI driving productivity growth and tariff exemptions, rulings, etc. **The Federal Reserve's monetary policy and inflation risks complement each other. If the Federal Reserve insists on a data-dependent approach, inflation risks may be controllable.** In 2026, the pace of interest rate cuts by the Federal Reserve may be "delayed." In the first half of the year, the characteristics of the U.S. macro economy may be resilient growth, stable employment, and inflation peaking, leading the Federal Reserve to pause interest rate cuts; in the second half of the year, with the beginning of disinflation, the Federal Reserve may restart interest rate cuts, totaling 1-2 times. **Risk Warning**: Escalation of geopolitical conflicts; U.S. economic slowdown exceeding expectations; Federal Reserve turning "hawkish" beyond expectations ## Related News & Research - [China Rolls Out Tougher Rules for Mobile Chargers After Safety Scares](https://longbridge.com/en/news/281627593.md) - [Omeros Turns Corner With Novo Deal, YARTEMLEA Launch](https://longbridge.com/en/news/281666535.md) - [The High-Bandwidth Memory (HBM) Bottleneck Can Still Cause Micron's Stock to Soar](https://longbridge.com/en/news/281662827.md) - [Shenzhen Xunce Technology Co., Ltd. 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