LIVE MARKETS-PPI: Inflation is cooling, UMich: Don't get used to it

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PPI: INFLATION IS COOLING, UMICH: DON'T GET USED TO IT

Markets wrapped up a week of volatile highs and lows with data that shows inflation is cooling, while consumer inflation expectations are quickly moving in the other direction.

A third major take on March inflation showed price growth cooled more sharply than expected last month.

Labor Department's Producer Price Index (PPI) USPPFD=ECI, which tracks the prices U.S. companies get for their goods and services at the figurative factory door, fell by 0.4% last month, defying analyst expectations for a 0.2% increase.

This follows an upwardly-revised 0.1% February gain.

Year-on-year, PPI grew by 2.7%, landing well below the 3.3% consensus.

Striking food and energy, PPI inched 0.1% lower instead of rising 0.3% as economist predicted, but again the February number was upped to 0.1% from -0.1%.

Core PPI, which excludes food, energy and trade services, rose 0.1% on the heels of February's upwardly revised 0.4%, and grew 3.4% from March 2024, a modest deceleration from the 3.5% growth in February.

But "this good news will not last very long," writes Carl Weinberg, chief economist at High Frequency Economics, who warns that the effect of tariffs will begin to make themselves felt in the April report, due mid-May.

These numbers "likely reflect a weakening economy ahead of a tariff shock," Weinberg adds. "If the Fed did not know that tariff increases were in the pipeline, it might even contemplate cutting rates on the back of today's news."

Even so, it's good to see core PPI within one percentage point of Powell & Co's inflation target:

The mood of the American consumer, who shoulders about 70% of the U.S. economy, has become unexpectedly dour this month.

The University of Michigan's (UMich) preliminary take on April Consumer Sentiment USUMSP=ECI plunged 6.2 points to 50.8, a much steeper slide than the 2.5 drop analysts expected.

It was the most pessimistic reading since June 2022.

Survey participants' assessment of current conditions fell by 11.4%, while near-term expectations plummeted by 10.3%.

Current conditions and expectations have plunged 28.5% and 37.9%, respectively, from a year ago.

The dire report echoes other recent survey data, which shows business and consumer outlooks growing increasingly gloomy amid mounting uncertainties surrounding U.S. President's chaotic policy moves.

Joanne Hsu, UMich's director of Consumer Surveys writes, "consumers report multiple warning signs that raise the risk of recession: expectations for business conditions, personal finances, incomes, inflation, and labor markets all continued to deteriorate this month."

The most attention-grabbing element of the report was easily one-year inflation expectations, which rocketed up by 1.7 percentage points to a nosebleed-inducing 6.7%.

That's the highest reading since 1981.

Respondents see inflation at 4.4% five years from now, up from 4.1% last month.

"The rise in near-term inflation expectations should not be ignored and is being driven by tariffs," says Ryan Sweet, chief U.S. economist at Oxford Economics. "Keeping inflation expectations anchored is critical for the Fed and one reason we don’t anticipate the central bank cutting interest rates until December."

(Stephen Culp)

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