Moderation in global core inflation reflects recent trends, with a surprising surge in January followed by a modest 0.15% rise in March.
Imminent tariffs are expected to notably impact U.S. core inflation as firms adapt pricing strategies, complicating economic forecasts.
Deep dives
Global Inflation Trends
Recent trends indicate a moderation in global core inflation, particularly after a surprising spike early in the year. In January, inflation surged, but by March, core CPI showed a modest increase of only 0.15%, marking one of the lowest readings in years. Despite this moderation, core inflation remains stubbornly around a 3% pace, with services inflation notably exceeding pre-pandemic levels. Energy prices have also contributed significantly to the overall inflation data, with a decrease helping to ease global headline inflation to an annualized 2.7% in recent months.
Impact of Tariffs on U.S. Consumer Prices
The imminent implementation of tariffs is expected to significantly impact U.S. consumer prices, although early data does not yet reflect this. Forecasts are predicting a noticeable increase in core inflation driven by tariffs, as firms begin to adjust pricing strategies while managing existing inventory. Some evidence suggests that both domestic and imported prices are rising, but the full effects of tariffs could take time to manifest in official consumer price indices. This delay may lead to an initial disconnect between anticipated price increases and current inflation data, complicating economic forecasting.
Central Banks and Future Economic Outlook
Global central banks are positioned to respond to the economic fallout from tariff shocks, with many anticipated to cut interest rates as inflation eases worldwide. In contrast to the U.S., where inflation pressures are expected to rise significantly, other central banks may have the flexibility to lower rates and support growth. The Federal Reserve faces unique challenges in navigating rising inflation expectations amidst tariffs, shifting its rate-cut timeline from earlier forecasts. Ultimately, the interplay between inflation and economic activity will dictate future monetary policy decisions and overall economic health.
Nora Szentivanyi and Michael Hanson discuss key takeaways from the latest Global Inflation monitor and the impact of tariffs on inflation in the US and the rest of the world. After a broad-based upside surprise in January, core inflation has shown a similar widespread moderation. The US CPI data show limited impact from tariffs through March, but we look for core inflation to jump to a 6%ar this quarter and next. At the same time, inflationary impulses in the rest of the world appear tilted to the downside; a pullback in US front-loading demand along with a decoupling of US-China trade should put downward pressure on goods prices as excess supply is redirected elsewhere. Absent a meaningful retaliation, we see core inflation outside the US moderating to 2.5-3%ar over 2H25.
This podcast was recorded on April 30, 2025.
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