As a result, US consumer inflation came in at 2.3% year-over-year, marginally below the expected 2.4% figure. This rate matches the inflation rate a year ago, reporting a stand-still in price increases. Core inflation, which excludes the volatile food and energy sector, has reached an annualized rate of 2.8%. Economists are calling this increase a bit of a disappointment.
Today’s release of the consumer inflation data set off a dramatic plummet of the US dollar. This after the dollar saw one of its strongest weeks of growth right before the announcement. Analysts indicate that this softer inflation data has played a role in the dollar’s decline, leading to fears of a potential recession over the long term.
The legacy effect of tariffs is still one of the most pressing wildcards in the inflation picture. Economists cautioned that the impact of the new tariffs will continue to spread for the next few quarters. Combined with inflationary pressures, this has the potential to push prices even higher over the next few months. Market watchers will be looking closely at this Friday’s release of import prices. They would like to identify early indications of real price effects as a result of the tariffs. The producer price index released on Thursday is likely to reflect at least the early impact of these tariff impacts. That’s yet another wrench in the inflation narrative.
Analysts are reading the tea leaves of inflationary indications. They’re closely observing how these trends will shape Federal Reserve policy and affect the dollar long term. The more dovish inflation picture suggests the central bank has room to be a bit more creative with its rate rise strategy. The long-term trajectory of prices remains uncertain with not only continued effects of tariffs still in place.