US inflation came in lower than expected at 2.4% in March, though the print is likely to be overshadowed by the impact of tariffs.
The month-on-month fall, down from 2.8% in February, was mostly attributed to a fall in gasoline prices.
Ronald Temple, chief market strategist at Lazard, said that the better-than-expected inflation data does not change the fact that higher tariffs will likely drive inflation meaningfully higher.
“Even after the reciprocal tariff policy reversal, the weighted average tariff on US imports remains over 20 percentage points above pre-inauguration levels, translating to over 200 basis points of additional inflation pressure over time.
“While the equity market surge was to be expected, investors should not get ahead of themselves in wishing away the effects of US trade policies on inflation, growth, and corporate profitability.”
See also: PA LIVE – Global equities and Trump volatility: Start of a new cycle?
Dan Siluk, head of global short duration & liquidity and portfolio manager at Janus Henderson, agreed that inflation is likely to remain volatile as the impact from tariffs begins to filter through.
“Key components contributing to the subdued inflation included declines in energy costs, airfares, used cars, and medical care goods, though rents showed some firmness. We remain circumspect regarding the current inflation data, as these figures are reflective of a period prior to the implementation of recent tariffs.
“Therefore, we expect that there could be more volatility from inflation reads in the months ahead, particularly from the (tariff impacted) goods side.”
However, the news will likely be received well by the Federal Reserve, with Seema Shah (pictured), chief global strategist at Principal Asset Management saying the inflation reading smooths the way for Fed cuts in the coming months.
“Fed speakers have been reiterating their inflation caution in recent days, but if inflation pressures prove to be more sanguine, then they will be more willing to provide the necessary support to the economy. Of course, it is still early days and, in all likelihood, tariffs will trigger a surge in inflation.
“The increase in US tariffs on China’s imports will deliver meaningful upward pressure to costs unless supply chains can be diverted to other economies, so inflation risks remain elevated, even after yesterday’s 90-day reprieve to the rest of the world.
“The Fed ultimately has no room for complacency, so rate cuts may be fairly constrained. We anticipate three to four cuts this year, with a severe labor market slowdown or simmering systemic risks the only factors to drive a more aggressive response.”