Angie Newman, UBS Global Wealth Management Manager, discusses market responses amid trade tensions and advises clients and investors.
Inflation rose at a slower pace than expected in March, but it far surpassed the Federal Reserve targets as central banks prepare to monitor the impact of tariffs on consumer prices in weeks and months.
On Thursday, the Bureau of Labor Statistics said the Consumer Price Index (CPI) is a broad measure of the range of everyday goods, including gasoline, food and rent costs, down 0.1% compared to last month and an increase of 2.4% per year.
Both figures were cooler than the LSEG Economist estimates, rising 0.2% per month since February, with headline inflation rate of 2.8%.
The so-called core prices have improved price growth trends by excluding more volatile measurements for gsolin and food, up 0.1% from the previous month and 2.8% per year, making them cooler than expected. Headline numbers fell from 3.1% a month ago, but monthly core data was incremented from 0.2%.
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The report shows that inflationary pressures in the US economy are sustained despite its expansion into bringing inflation closer to the Federal Reserve 2% target in recent years.
High inflation creates severe financial pressure on most US households, forcing them to pay more for everyday necessities such as food and rent. Price increases are particularly difficult for low-income Americans. Because they tend to spend more of their already extended salaries on essentials and are less flexible in saving money.
Food prices rose 0.4% in March, up 3% per year. Food at Home Index rose 0.5% each month, up 2.4% from a year ago, but foods away from Home Index rose 0.4% in March, 3.8% higher than a year ago.
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CPI inflation cooled to 2.4% year-on-year in March. (Elijah Nouvelage / AFP Getty Images / Getty Images)
As the industry handles avian flu outbreaks, egg prices have been 5.9% higher in March, slower price growth than in recent months. Prices for meat, chicken and fish increased by 0.6% that month, while prices for fruits and vegetables fell by 0.5%. Dairy prices rose 1% in March.
Energy prices fell 2.4% from the previous month to March, with the decline rising above an increase in offsets for electricity (+0.9%) and natural gas (+3.6%) due to a 6.3% drop in gas prices.
Home costs rose in March as the shelter index rose 0.2% in a month. Last year, the shelter index rose 4%. This was the 12-month minimum increase since November 2021.
Transport costs fell 1.4% in March, with lower airfares (-5.3%) and car insurance (-0.8%) offsetting an increase in car maintenance and repairs (+0.8%). Despite monthly declines in car insurance costs, they remained 7.5% higher than a year ago.
What time frame is Trump's tariffs leading to price increases?
Cooler than expected inflation shows that the Federal Reserve is looking for signs of inflation sinking to its 2% target before it moves forward with further interest rate cuts. Central bank policymakers have expressed concern about the president's impact Donald Trump's Tariffs on inflation in the minutes of the latest meetings.
President Donald Trump's tariffs could cause inflation, and Federal Reserve Chairman Jerome Powell signalling the central bank will monitor the data. (Saul Loeb/AFP via Getty Images/Getty Images)
Fed Chairman Jerome Powell says it can be difficult to identify whether certain inflation data is due to tariffs or other economic factors, so analysts will carefully consider incoming data. Most economists suggest that tariff-related price increases will not be visible in inflation data until this spring, starting with data released in May.
“The suspension yesterday doesn't mean that tariffs are no longer driving the economic narrative,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “Inflation that is cooler than expected today should be considered old news, and tariffs are expected to increase inflation in the coming months. The Fed will remain in a tough place, sandwiched between the economy's tough financial position and the trade war that will create a weighty economic situation as inflation begins.”
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According to CME FedWatch tools, Thursday's inflation report had little impact on market expectations for the Fed meeting next month as Traders continues to raise prices around 79% of the time the Fed has not changed. The chances of a 25 basis points cut at the Fed's June meeting rose to about 67% from 63% a week ago.
