Danske Research Team
Danske Bank A/S
Overview: April data showed no clear signs of tariff-driven inflation. Underlying price pressures remained on a cooling trend across both the euro area and the US, as well as goods and services. Commodity prices have recovered modestly as tariffdriven growth concerns have eased. Especially consumers’ inflation expectations have risen sharply in the US, but longer-term market-based expectations remain well anchored. We still expect both the ECB and the Fed to continue cutting rates.
Inflation expectations: Market-based short-term inflation expectations have diverged sharply with EA expectations well below 2% and US expectations on the rise. Long-term market-based expectations remain well anchored. Consumers’ inflation expectations have risen sharply in the US according to most surveys.
US: April CPI surprised modestly to the downside in both headline (+0.22% m/m SA, forecast +0.3%, March -0.1%) and core terms (+0.24% m/m SA, forecast +0.3%, March +0.1%). There was little evidence of tariff-driven price pressures, as core goods inflation remained slow (+0.06% m/m) and food prices even declined slightly (-0.08% m/m). Energy and shelter inflation was slightly faster than we expected. Interestingly, core services inflation excluding shelter and health care remained negative for the second consecutive month (-0.02% m/m), which suggests that underlying price pressures have remained in check despite the trade war.
Euro: Inflation in the euro area remained at 2.2% year-on-year in April, slightly above expectations of a decline to 2.1%. The stronger inflation figure was driven by core inflation, which rose to 2.7% year-on-year from 2.4%, surpassing expectations of 2.5%. Core inflation was anticipated to rise due to Easter occurring in April this year, compared to March last year, which typically raises travel prices. However, even when accounting for the Easter effect, core services inflation was strong, with monthly price increases of 0.50% in seasonally adjusted terms, marking the strongest growth rate seen in a year. Yet, we expect details in the final print to reveal a one-off rather than new price pressures as wage growth is clearly declining.
China: April CPI was flat at -0.1% y/y while core CPI rose 0.5 % y/y, also unchanged from March. PPI deflation dropped to -2.7% y/y from -2.5% y/y.
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