LIVE MARKETS-Cool CPI, low jobless claims lost in the fog of ongoing trade wars

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COOL CPI, LOW JOBLESS CLAIMS LOST IN THE FOG OF ONGOING TRADE WARS

As a rule, a cooler-than-expected inflation report and solid labor market data would likely support a rally. But in the face of wide market swings subject to erratic trade policies, investors are more focused on uncertainties regarding the future than backward-looking indicators.

The Labor Department's Consumer Price Index (CPI) USCPI=ECI, which tracks the prices U.S. consumers pay for a basket of goods and services, unexpectedly edged 0.1% lower in March, an abrupt cool-down from February's 0.2% gain and defying the 0.1% growth analysts expected.

Year-on-year, prices rose 2.4%, or 0.4 percentage points slower than the prior month's pace, landing well below the 2.6% consensus.

Core CPI, which omits volatile food and energy prices - and is often referred to as "underlying inflation" - rose on monthly and annual bases by 0.1% and 2.8%, respectively.

Both metrics landed south of estimates.

"This is good news," Peter Cardillo, chief market economist at Spartan Capital Securities told Reuters. "It shows that inflation is receding, and this is good news for the Fed."

But the market remains focused on President Trump's multi-front tariff spat, and the risk of inflation reigniting in its wake.

"Unless there is a change of heart, either from China, or from the United States ... the markets will keep focusing on that," Cardillo adds. "I don't see inflation emanating from tariffs as transitory."

This report brings underlying inflation within one percentage point of Powell & Co's 2% inflation target:

Line-by-line, a 6.3% drop in gasoline prices is an attention-grabber, as is the 5.3% drop in airfares. Food prices increased by 0.4% and are up 3.0% year-on-year.

Closely watched shelter and services prices both increased by 0.2% last month, and since March 2024 they've risen 4.0% and 3.7%, respectively, much hotter than the broader core reading.

Even so, they appear to be moving in an agreeable direction:

Turning to the labor market, 223,000 U.S. workers filled out fresh applications for unemployment benefits USJOB=ECI, marking a 1.8% weekly increase, and hitting the consensus bull's eye.

The pace of layoffs has been low and rangebound, as demonstrated by the unchanged four-week moving average of initial claims.

But many analysts don't expect that to last much longer.

"We think a much bigger increase in jobless claims is in store over the next month or two," writes Oliver Allen, senior U.S. economist at Pantheon Macroeconomics. "We think the combination of weak hiring and a steady grind higher in layoffs means that the unemployment rate will creep up towards 4.5% by the end of this year."

Ongoing jobless claims USJOBN=ECI, reported on a one-week lag, fell by 2.3% to 1.850 million, or 32,000 fewer than analysts expected.

Even so, continuing claims remain elevated, and support recent consumer survey data suggesting laid-off workers are finding it increasingly difficult to find a replacement gig.

(Stephen Culp)

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