US March CPI Inflation Cools Across the Board, but "Trump Tariff Impact" Is Expected to Emerge

On Thursday local time, data released by the US Department of Labor showed that US March CPI inflation was below expectations across the board, but this optimistic inflation report was not enough to ease market concerns, as the impact of Trump's tariffs is about to fully materialize. Economists warned that Thursday's CPI report likely marked the low point of inflation this year, as Trump's massive and comprehensive tariffs have upended global trade order, and imported products will see significant price increases. Specific data showed that the US March unadjusted CPI YoY was 2.4%, a significant pullback from the 2.8% level last month, hitting a six-month low and below the market expectation of 2.6%. The US March seasonally adjusted CPI MoM was -0.1%, unexpectedly recording a negative value, the lowest level since May 2020, far below the market expectation of 0.1%. Core CPI, excluding food and energy costs, rose 2.8% YoY, pulling back for the second consecutive month, the lowest level since March 2021, with an expected value of 3.0%. The US March seasonally adjusted core CPI MoM was 0.1%, the lowest level since June 2024, with an expected value of 0.3%. The US Bureau of Labor Statistics pointed out that housing costs, which account for about one-third of CPI, rose slightly by 0.2%, the same as last June, the lowest level since August 2022. However, households still face persistent price pressures, with the owners' equivalent rent index rising 0.4%, hitting a five-month high. In other areas, grocery costs rose 0.5%, the largest increase since October 2022, with egg prices up 5.9% MoM and 60.4% YoY. As bird flu is brought under control, wholesale egg prices began to decline, but the drop in retail prices last month was not significant. However, energy prices pulled back across the board, with gasoline prices down 6.3%, fuel oil prices down 4.2%. Used car prices fell 0.7%, airfare prices fell 5.3%, and healthcare prices rose 0.2%. The US inflation data released today came before Trump announced the "Liberation Day" tariff policy. Therefore, it is still too early to clearly see the specific impact of these policies. David Kelly, chief global strategist at J.P. Morgan Asset Management, said: "This is a brief calm before the storm, and we will face an inflation shock triggered by tariffs. We have seen weakness in the tourism industry, and I think this year will get worse." Although Trump announced on Wednesday that he had authorized a 90-day suspension of higher reciprocal tariffs on countries that do not take retaliatory actions, the basic 10% tariff on almost all imported goods will remain in effect. Some higher import costs will eventually be passed on to consumers, with companies from Target to Volkswagen warning that Americans will face higher prices. In fact, recently, US consumers have been on a hoarding spree, preparing for price increases, and this behavior itself will drive up prices. This uncertainty may keep US Fed officials on the sidelines, as they hope to gain a clearer understanding of the impact of tariffs on inflation and the broader economy. After the CPI data was released, traders increased their bets on a US Fed rate cut, with the market almost fully pricing in a June rate cut and expecting a 100 basis point cut by the end of the year. The US Fed faces a dilemma: whether to cut rates to prevent an economic slowdown that may be triggered by Trump's comprehensive tariffs on US trading partners, or to raise rates to prevent inflation from rising. Economist Harriet Torry commented that normally, a slowdown in CPI YoY growth would be welcome news, but this time, investors, policymakers, and businesses will find it difficult to read too much into the March data.

SMM

US March CPI Inflation Cools Across the Board, but "Trump Tariff Impact" Is Expected to Emerge

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