Hidden just out of sight over the controversy about Trump tariffs are two key inflation reports this week
The first comes out Thursday and should show a little improvement from March. The second is about producer prices, due Friday.
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But whether the improvement is enough to ease inflation worries generated by the tariff questions won’t be clear for a little while. On Wednesday, President Trump paused the imposition of tariffs other than a 10% baseline on many countries for 90 days.
The one exception was China, and the Administration boosted tariffs on goods imported from China to the United States to 125%.
Related: Surprising tariff news sends S&P 500 soaring
The pause did relieve many people in non-U.S. countries. They were facing higher tariffs to get goods into the United States, and Trump’s pause set off a huge stock-market rally.
The Nasdaq Composite Index had its biggest one-day point gain ever and its biggest one-day percentage gain since Jan. 3, 2001.
The Standard & Poor’s 500 Index was up 9.7% on the day, its biggest one-day percentage gain since October 2008.
Thursday’s report is the Consumer Price Index for March. Issued by the Bureau of Labor Statistics, it comes out before financial markets open in New York. It will be followed Friday by the Producer Price Index report, which measures prices that businesses receive.
FactSet, the business analytics company, is estimating the CPI report will show consumer inflation at 2.6% year-over-year, down slightly from the 2.8% year-over year change in the February report.
The January CPI report showed a year-over-year change at 3%. That was up from December and the fourth straight monthly increase.
Post-pandemic prices have made many consumers reluctant to spend lavishly, especially this year, preferring to seek out savings at such stores as Walmart (WMT) , Costco Wholesale (COST) or Target (TGT) .
Customers shop for groceries at a Walmart store in Secaucus, N.J. in 2024.
Why this matters
Long story short: The Federal Reserve is focused on getting inflation down to 2%, and for the Fed and Chairman Jerome Powell, 2.6% is still too high.
The Fed wants inflation at — or really near to — 2%. Its motivation on this point is from the Covid-19 aftermath in 2022 when the CPI reached almost 9%.
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So, it doesn’t matter if you’re looking at inflation measures in the CPI data or Friday’s Producer Price Index report. It’s that 2% level that matters.
Most important, it won’t affect the Personal Consumption Expenditures Index, which the Fed regards as the best inflation report. PCE Index data tracks prices of what we buy. The report comes from the Commerce Department. The next report doesn’t come out until April 30.
The last PCE report showed prices rising 2.5% over year in February, unchanged from January.
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Where rates stand
Because of this intense focus on 2% inflation, however defined, the Fed has left its key federal funds rate at 4.25% to 4.5% since November. Mortgage rates were nearing 7% on Wednesday. Rates at these levels and high home prices have depressed home sales since the end of the Covid-19 pandemic.
President Trump, however, has been pushing the Fed to move faster to cut rates.
This tug-of-war gets affected by the tariff situation because nearly all economists believe that tariffs boost inflation.
And the Fed is expected to leave its fed funds rate unchanged at its May 6-7 meeting.
The CME FedWatch tool is projecting a rate cut at the Fed’s June 17-18 meeting, a second in July and a third in the fall.
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