Commented: US March CPI -0.1% vs 0.1% (MoM)

The core inflation in the U.S. significantly cooled down in March, showing some relief for consumers ahead of the imposition of widespread tariffs that threaten to increase price pressures.
The consumer price index, excluding the often volatile food and energy, rose by 0.1% compared to February — the lowest increase in the past nine months, according to data from the Bureau of Labor Statistics released on Thursday. Compared to March of last year, core CPI increased by 2.8%, remaining at its lowest level in nearly four years. The overall CPI declined by 0.1% from the previous month — the first decrease in nearly five years — and rose by 2.4% year-over-year.

The CPI was helped by drops in energy prices, used cars, and airline tickets, as well as a slower increase in clothing prices. The yield on government bonds fell, futures on the S&P 500 remained lower, and the dollar continued to depreciate during the day. While the data provides some relief for consumers struggling with high prices for years, the good news may prove short-lived as President Donald Trump implemented broader tariffs. Although Trump announced a 90-day pause on higher mutual tariffs on Wednesday — less than 24 hours after they came into effect — imports from most countries are already subject to a 10% tariff. The U.S. began collecting tariffs last month on imports of steel and aluminum, and tariffs on China now amount to 125% following retaliatory measures by Beijing earlier this week.

Some of the higher import costs will eventually be passed on to consumers, and companies like Target Co. and Volkswagen AG have already warned that Americans will face higher prices.
The uncertainty has caused Federal Reserve officials to take a wait-and-see position as they seek more clarity on the impact tariffs will have on inflation — and on the economy overall.

The slowdown in core inflation in the U.S. in March provides further arguments for the Federal Reserve to continue with a softer monetary policy. This easing of inflationary pressure strengthens expectations of a possible rate cut later in the year, which puts downward pressure on the dollar and contributes to a drop in government bond yields.

For the U.S. indices, the picture is mixed: on one hand, lower inflation is good news for the markets as it reduces the risk of aggressive actions from the Fed; on the other hand, uncertainty regarding the tariffs and their future inflationary effect cools investors’ enthusiasm. As a result, S&P 500 futures remained weak despite the positive inflation data.

In summary: the dollar will likely continue to weaken, indices will fluctuate as we await more clarity on tariffs, and the Fed is likely to remain cautious, but leaning toward easing.

CPI (MoM) (Mar)
Actual: -0.1%
Forecast: 0.1%
Previous: 0.2%