Intermoney | Amidst the tariff ‘back-and-forth’, Wednesday’s US inflation data emerged and did not go unnoticed for showing a clear moderation of prices in each of its corresponding readings. Both the monthly and year-on-year CPI and the core CPI moderated compared to the previous month and were below expectations. The different figures were: monthly CPI (+0.2% vs. +0.3% Spain and +0.5% previous month), monthly core CPI (+0.2% vs. +0.3% Spain and +0.4% previous month), annual CPI (+2.8% vs. +2.9% expected and +3.0% previously) and annual core CPI (+3.1% vs. +3.2% expected and +3.3% previously).
Inflation cooled in its main categories, both in basic goods and services. Although house prices rose by 4.2% year-on-year over the last year, this was the smallest increase in 12 months since December 2021. If we take the equivalent rent of homeowners, prices rose by 4.4% year-on-year, but we were facing a clear moderation of an item that a year ago showed a growth rate of 6.0% and that represents 26.2% of the inflation rate. There continue to be sub-items that show very clear upturns such as motor vehicle insurance (up 11.1% year-on-year), medical care (2.9% year-on-year), leisure (1.8% year-on-year) and education (3.7% year-on-year); although the trend is for prices to fall.
Worth noting is the 4.0% drop in airfares, which probably coincides with recent pessimistic comments about air travel. This is significant because its contraction is due to lower consumer demand. The February CPI report pointed to a weakening in demand for discretionary goods, reflecting the contraction in spending evident in other data. However, disinflation in certain goods highly exposed to tariffs (cars, household furniture, clothing) has stalled. Ultimately, the net impact of tariff policies on the CPI will depend on whether the decline in spending on services offsets the rise in goods prices. In February, it became clear that the disinflationary effect on services outweighed the rebound in goods inflation.
At first glance, the better inflation data should be reassuring for the Fed, affirming that prices are on the right track. However, it is difficult to know with certainty how these figures will evolve for the Fed’s debate this year, given that we still lack clarity on tariffs and their impact on prices. New government policies including trade barriers and immigration controls could cause a rise in inflation in the short term, while in the long term growth will slow down.
