😰🤷♀️ Inflation Dips, But Fear Rises: What’s Really Going On?
Happy Sunday,
As the dust settles on another volatile week in global markets, signs of softness in US inflation offered a surprising glimmer of calm. But don’t get too cozy. Underneath the surface: consumer panic at levels unseen since the early ‘80s, looming tariff impacts, and a dramatic exemption move by the Trump administration that just flipped the script for the global tech supply chain.
In this week’s edition: the data, the sentiment, the politics - and what they all mean for markets on edge.
- Humphrey & Rickie
Market Report
US Inflation Unexpectedly Falls Ahead of Tariffs’ Impact
US inflation showed unexpected broad signs of cooling in March, offering some temporary relief before anticipated price pressures from tariffs.
The CPI index fell by 0.1% from February, the first monthly decrease in nearly five years, largely due to falling energy costs. Core CPI, excluding food and energy, rose by only 0.1%, its slowest pace in nine months.
This decrease in inflation was due to lower prices for energy, used cars, hotel stays, airfares, and motor vehicle insurance. Despite existing tariffs, their impact on March's inflation figures was minimal so far.
Producers also got some relief as wholesale prices declined in March, dropping 0.4% from the previous month, the most significant fall since October 2023, again heavily influenced by lower energy costs. Core PPI saw a slight decrease as well.
While some underlying costs for goods increased modestly, falling services prices and narrowing retailer margins contributed to the overall decline.
Sentiment Tumbles on Highest Consumer Inflation Expectations Since 1981
In early April, US consumer sentiment plunged dramatically, reaching 50.8 in the University of Michigan's preliminary survey, the second-lowest reading in the survey's history.
The survey observed escalating consumer anxiety, largely fueled by concerns about the economic consequences of widespread tariffs.
Alongside sinking sentiment, inflation expectations soared to multi-decade highs; consumers anticipated prices rising 6.7% over the next year (the highest since 1981) and 4.4% annually over the next five to ten years (the highest since 1991).
This pessimism extended beyond inflation, with expectations of rising unemployment hitting levels not seen since 2009 and personal job loss fears increasing.
The decline in confidence was broad, but analysts have been tracking an increased decoupling between Republicans and Democrats regarding economic sentiment.
Trump Announces Exemptions for Electronics From Reciprocal Tariffs
The Trump administration announced over the weekend exemptions for various key electronics from its recently imposed "reciprocal" tariffs.
Popular consumer items like smartphones, laptop computers, computer processors, and memory chips – products largely manufactured outside the US – will be excluded from both the 125% tariff on Chinese goods and the 10% baseline tariff on imports from most other countries.
This decision provides a major, but temporary relief for global tech giants such as Apple and Nvidia, as well as for consumers who feared sharp price increases.
These exemptions would cover nearly $390 billion in US imports based on 2024 trade data, including over $101 billion worth of goods from China alone (approximately 22% of total US imports from China that year).
Smartphones and computers represent the largest categories benefiting from this exclusion regarding Chinese imports.
The move, seen as the first major softening in the administration's recent tariff strategy, also exempts vital semiconductor manufacturing equipment, crucial for companies like TSMC, Samsung, and Intel currently building chip factories in the US.
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