Good news, but does it matter?
Both the overall and core CPI measures rose by a modest 0.1 percent for March, bringing the 12-month trend rates down to 2.4 and 2.8 percent, respectively. The trend rates are both better than market expectations, although the three- and six-month annualized rates were at 3.0 percent. Still, this was a definite improvement in the inflation figures and move the trend rates closer to the Fed’s long-term goal of 2.0 percent.
But while this is certainly positive news, does it matter to financial markets and the Federal Reserve? The world has changed since the CPI survey for March with the imposition of tariffs (even if the reciprocal tariffs are on pause, the 10 percent base tariffs remain and tariffs over 100 percent on China are now in place). Even if prices on services remain well-contained, tariff increases on goods will push the CPI higher. Markets know this, as does the Fed, so the goods news on March inflation is far in the rear-view mirror, even if it’s only less than a month old.
The most recent data on weekly unemployment claims is more timely than the CPI data, as they reflect claims through April 5. Initial claims remained subdued at 223,000 for the most recent week, with the four-week average unchanged (also at 223,000). There was also a small drop in claims for unemployment benefits by former federal civilian employees – which have now fallen back to levels seen in the second half of last year. These data show that firms continue to hold tight to their workers and suggest that there should be no jump in unemployment rates for April. But even these more up-to-date figures are still primarily pre-tariff, and markets are correct to view than as belonging to the “old world” and not the new post-tariff world. Indeed, both equity and fixed-income markets are off despite the good economic data.
We should expect to see at least moderately higher inflation and unemployment claims data soon.
David W. Berson, Ph.D., CBE
Chief US Economist
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