In March, US inflation eased more than expected. The US consumer price index (CPI) climbed 2.4% year-on-year in March, down from 2.8% in February and below the market estimate of 2.6%.
On a monthly basis, CPI fell by 0.1% in March, down sharply from 0.2% a month prior and below the market estimate of 0.1%. This marked the lowest rate since October 2024.
Core CPI, which excludes food and energy and is considered a better gauge of inflation trends, dropped to 2.8% year-on-year, down from 3.1% in February and below the market estimate of 3.0%. This was the lowest level since April 2021. Monthly, core CPI dropped from 0.2% to 0.1%, shy of the market estimate of 0.3%. It was expected to rise.
The softer-than-expected inflation report is positive news for two reasons. First, it indicates that inflation cooled for the second consecutive month of US President Donald’s Trump term, despite his tariff trade policy. This is a relief for the financial markets, but a very minor one, as the news on inflation is massively overshadowed by yesterday’s partial US climbdown on tariffs. Despite that, there is still plenty of concern over the 10% tariff, the 125% tariff on Chinese imports, and the 90-day moratorium and extensive international negotiations which are just getting underway.
What’s Next for the Fed?
The Federal Reserve remains in a wait-and-see mode as it monitors what will be the outcome of tariff negotiations over the forthcoming three months, and what the effect of the 125% tariff on Chinese imports, which has already taken effect, will be. The chance of a rate cut at the Fed’s next policy meeting in May has fallen to 21%, down sharply from 36% yesterday, according to CME FedWatch. However, this just shows how much tariffs are overshadowing inflation, as lower than expected inflation would make a rate cut more, not less likely.
US Dollar Steady, US stock Markets Higher after Inflation Report
The US dollar continued its decline after the inflation data was released. US stock markets and treasury yields barely moved.
The EUR/USD currency pair is just a few pips away from making a new 5-month high price, while the USD/JPY is not far from hitting a new 6-month low. The lower inflation data seems to be giving a minor tailwind to an already declining Dollar suffering from the effect of President Trump’s tariffs.
The Nasdaq 100 Index has jumped 223.99 points (1.16%) and is at 19,600.94. The S&P 500 Index has posted more modest gains, rising 22.11 points (0.39%) and is at 5593.58.
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