US inflation to show some relief ahead of tariff impact
Some tariffs have been in place since February, and several economists anticipate an impact in the March inflation report on prices of items imported from China, such as clothes, furniture and electronics
[NEW YORK] US inflation likely stepped down in March, thanks in part to a drop in energy costs, offering some relief to consumers before tariffs filter through the economy.
The consumer price index (CPI) is seen rising 0.1 per cent from February, the smallest monthly gain in eight months, according to the median forecast in a Bloomberg survey of economists.
While a core measure that excludes the volatile food and energy categories is expected to have risen at a firmer 0.3 per cent pace, both metrics are likely moderated on an annual basis in the CPI report due on Thursday (Apr 10).
US President Donald Trump on Wednesday announced a 90-day pause on high tariffs that hit dozens of trading partners just a few hours earlier, keeping in place a 10 per cent baseline rate for now. He also raised duties on goods from China, after that country retaliated.
Some tariffs have been in place since February, and several economists anticipate an impact in the March inflation report on prices of items imported from China, such as clothes, furniture and electronics.
“Given that about 20 per cent of apparel imports are from China, price pressures stemming from President Trump’s February tariffs on China could begin to show up in this data,” Deutsche Bank economists led by Brett Ryan wrote in a note.
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In addition, some consumers likely tried to get ahead of future tariffs by buying products, including cars, which probably put pressure on prices.
UBS Group economists say that it might take longer for the initial round of levies to be passed on to consumers, based on what happened during the first Trump administration. The bank is projecting goods prices excluding food, energy and transportation will rise in each of the next six months, ending a disinflation trend that helped bring inflation down last year.
“Based on the pass-through that we saw in the 2018 to 2019 tariff episode, we would expect those February and March tariff increases to have their biggest impact on the monthly US CPI changes during the May to August time period,” UBS economist Alan Detmeister wrote.
Services costs
A key metric of services inflation that excludes housing and is closely tracked by the Federal Reserve has eased since last year, contributing to a broader disinflation trend.
Pantheon Macroeconomics’ Samuel Tombs and Oliver Allen expect that trend continued in March as weaker demand for plane tickets and hotels offset increases in other categories, noting that “relatively few services businesses have increased prices lately”.
That expectation was echoed by BNP Paribas. With annual wage growth stalling, the forecasters anticipate “little change” in many services categories in the March CPI report.
“Given the sharp decline in consumer sentiment, we cannot rule out the possibility that the soft February inflation readings for airfares and hotels reflect a dimming outlook in these industries,” economists Andy Schneider and Britney Jackson said in a note. “We will focus on whether this softness persists in March.”
Egg prices
After egg prices surged at the start of the year, March probably showed signs of relief. Some economists anticipate prices may fall going forward as bird flu cases decline and consumers find alternatives.
“The recent drop in bird flu cases and the ongoing correction in wholesale prices suggest that egg deflation will start in April, bringing down food-at-home CPI at least until the new tariffs start hitting domestic food prices,” Morgan Stanley economists said in a note. BLOOMBERG
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