But tariffs could be a wild card, raising prices for imported goods
of ConsumerAffairsKey takeaways
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Encouraging signs for inflation: Both the Consumer Price Index (CPI) and Producer Price Index (PPI) declined in March, indicating possible relief from inflationary pressures. The CPI dropped by 0.1%its first decline in five yearswhile the PPI fell by 0.4%, largely driven by a 0.9% drop in goods prices.
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Services inflation remains persistent: Despite the overall PPI decline, services inflation rose by 0.2%, highlighting that areas like rent, healthcare, and insurance remain "sticky" and may continue to pressure overall inflation even if goods prices fall.
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Tariffs and external risks: Geopolitical tensions, strong consumer demand, and upcoming tariffseven modest onescould undermine recent inflation improvements, especially through higher import and manufacturing costs, such as in sectors dependent on imported steel.
The news about inflation appears to be getting better. A day after the Bureau of Labor Statistics reported the March Consumer Price Index declined for the first time in five years, the agency reported an even bigger March decline in the Producer Price Index.
The PPI measures final demand prices at the producer or wholesale level. In March, the PPI for final demand products and services declined by 0.4%, after increasing by 0.1% in February and 0.6% in January.
The PPI for final demand services rose by 0.2% but the PPI for final demand products fell by 0.9%.
On Thursday, the BLS reported the CPI for March was down by 0.1%, led by a sharp decline in gasoline prices. Food prices, however, continued to rise, both at the grocery store and at restaurants.
A lower PPI normally leads to lower prices at the consumer level in the months ahead. However, there are several caveats. As evidenced in the March PPI, services inflation can be sticky. Many service-related costs, such as rent, healthcare and insurance. are less sensitive to PPI and tend to stay elevated even if goods prices fall.
Geopolitical risks
Also, consumer demand can be a factor. If demand remains strong, retailers may not lower prices even if their costs decline. Supply chain disruptions, oil price shocks, or geopolitical risks can also override domestic trends in PPI.
And that brings us to the elephant in the room tariffs. While President Trump has postponed most of his large tariff increases for 90 days, economists say even modest tariffs are likely to increase the prices of imports by some amount.
Even U.S. manufacturing can be affected if there is a tariff on imported steel. American manufacturers using steel, such as auto or appliance makers, may raise prices on cars or washing machines.
In the past, tariffs have been shown toincrease inflationary pressures in the short to medium term, especially when they are applied on consumergoods. They raise costs for businesses and consumers, often without quick or easy substitutes. Over time, these pressures may be compounded if trade tensions escalate or if retaliatory actions are taken by trading partners.
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Posted: 2025-04-11 15:09:52
