US producer prices posted a surprise decline in March, with the headline PPI for final demand falling -0.4% mom, well below expectations of a 0.2% mom rise.
The drop was driven largely by a -0.9% mom decline in final demand goods, while final demand services also slipped -0.2% mom.
On an annual basis, PPI slowed to 2.7% year-on-year from 3.2%, also below forecasts.
PPI excludes food, energy, and trade services, rose just 0.1% mom on the month, with the year-on-year rate at 3.4%.
EU Economy Commissioner Valdis Dombrovskis acknowledged the US decision to pause reciprocal tariffs above 10% for 90 days as a positive step that opens the door to negotiations. However, he cautioned that the existing 10% duties still in place on nearly all countries continue to weigh on the global economy. Additionally, the US has not lifted its 25% tariffs on steel, aluminum, cars, and car parts—measures that remain a significant source of transatlantic economic tension.
Dombrovskis pointed to a model simulations indicating that the current US tariff structure could reduce US GDP by 0.8% to 1.4% through 2027. While the economic fallout for the EU is expected to be milder—around 0.2% of GDP—he warned that the damage could escalate dramatically if tariffs become entrenched or retaliatory actions intensify.
Under such a worst-case scenario, Dombrovskis said US GDP could fall by as much as 3.3%, with the EU losing up to 0.6% and global GDP shrinking by 1.2%. The impact on global trade would be particularly severe, with an estimated contraction of 7.7% over the next three years.
The UK economy delivered a strong upside surprise in February, with GDP expanding by 0.5% mom, far exceeding market expectations of just 0.1% mom. All three major sectors contributed to the growth: services rose by 0.3% mom, production surged by 1.5% mom, and construction edged up 0.4% mom.
On a three-month rolling basis, real GDP grew by 0.6% to February 2025 compared to the previous three months, driven largely by a 0.6% rise in services output and a 0.7% gain in production. Construction, however, was flat over the period.
New Zealand’s BusinessNZ Performance of Manufacturing Index slipped slightly from 54.1 to 53.2 in March, but remained firmly in expansion territory. Production climbed to 54.2, the highest level since December 2021. Employment also posted a robust 54.7, marking its strongest result since mid-2021. However, a decline in new orders, which dipped below the 50-neutral mark to 49.6, raises concerns about the durability of this rebound.
BusinessNZ’s Catherine Beard acknowledged the resilience in activity and employment, but highlighted persistent challenges. Despite improving sentiment, nearly 58% of surveyed manufacturers cited negative conditions, pointing to weak demand, fewer new orders, and uncertainty across both domestic and export channels.
BNZ Senior Economist Doug Steel noted that the PMI data supports the case for manufacturing GDP growth in early 2025. Still, he cautioned that risks to the outlook are clearly tilted to the downside, “given recent extreme volatility on global markets following rapidly evolving US-driven trade policy changes.”
Speaking overnight, Chicago Fed President Austan Goolsbee said that nothing is “off the table”, including rate hikes, cuts, or holds. The sheer scale of recent trade developments creates a stagflationary shock, and there is “not a generic playbook” for how a central bank should respond to.
Also, Goolsbee noted a key challenge: the data being released now may not yet fully reflect the evolving reality on the ground. That’s why he believes Fed must closely monitor both hard data and soft indicators, especially as lag effects complicate interpretation.
Despite the tariff-related uncertainty, Goolsbee still sees rates trending lower over the next one to two years. Nevertheless, he stressed that should long-run inflation expectations begin to drift, “any central bank almost has to address that… regardless of what the other conditions are.”
Boston Fed President Susan Collins said in a speech overnight that keep interest rate at current level is “appropriate for the time being” due to the “highly uncertain environment.”
Collins acknowledged that “renewed price pressures” from tariffs could “delay further normalization of policy”.
“Confidence is needed that the tariffs are not destabilizing inflation expectations,” she emphasized.
She added that any “preemptive action” to support growth would require a “compelling” signal that economic activity is deteriorating more than expected.
Although she expects inflation to gradually return to the 2% target, she acknowledged that core inflation may rise “well above” 3% in the near term due to higher import costs. In her view, the Fed must remain vigilant to ensure these pressures do not become entrenched.
Kansas City Fed President Jeff Schmid delivered a hawkish message today, emphasizing that his primary focus remains “squarely” on the inflation outlook.
He flagged a notable increase in upside inflation risks alongside rising downside risks to employment and growth, painting a challenging picture for policymakers.
However, he emphasized, “With renewed price pressures likely, I am not willing to take any chances when it comes to maintaining the Fed’s credibility on inflation.”
Addressing the inflationary impact of tariffs, Schmid acknowledged that while economic theory suggests a one-off price shock rather than sustained inflation, he’s not inclined to rely too heavily on that assumption under current conditions.
“I would be hesitant to take too much solace from theory in this environment,” he noted, referencing recent episodes of persistently high inflation that caught many off guard.
Dallas Fed President Lorie Logan emphasized today that Fed must be vigilant in preventing tariff-related price increases from “fostering more persistent inflation”.
She noted that the inflationary impact of tariffs hinges on two key variables: how rapidly businesses pass higher import costs onto consumers, and whether long-term inflation expectations stay anchored.
“A sustained burst of inflation could lead households and businesses to expect further price increases, especially following the persistently elevated inflation in recent years.” she warned.
US initial jobless claims rose 4k to 223k in the week ending April 5, slightly above expectation of 222k. Four-week moving average of initial claims was unchanged at 223k.
Continuing claims fell -43k to 1850k in the week ending March 29. Four-week moving average of continuing claims fell -250 to 1868k.
US inflation came in much softer than expected in March, with headline CPI falling -0.1% mom, surprising markets that had forecast a 0.2% mom increase. Core CPI, which excludes food and energy, also underwhelmed with just a 0.1% mom gain, well below the anticipated 0.3% mom. The pullback was led by a -2.4% mom drop in energy prices, while food costs continued to climb, rising 0.4% mom.
On an annual basis, the CPI decelerated from 2.8% yoy to 2.4% yoy, lower than the expected 2.5% yoy. Core CPI also slowed to 2.8% yoy, down from 3.1% yoy, and marked the smallest 12-month increase since March 2021. The sharp drop in energy prices, down -3.3% yoy, played a significant role, although food inflation remained sticky at 3.0% yoy.
RBA Governor Michele Bullock stated today that it is “too early” to judge how escalating global trade war will shape the path of Australian interest rates. “it’s too early for us to determine what the path will be for interest rates,” she added.
Bullock noted that “a period of uncertainty and adjustment” is inevitable as countries react to Washington’s trade moves. RBA plans to stay patient while assessing how these global shocks might affect both supply and demand dynamics. “It will take some time to see how all of this plays out,” she said.
French ECB Governing Council member François Villeroy de Galhau emphasized today that while the US has long championed the global centrality of the Dollar, recent policy moves on tariffs are beginning to erode international confidence in the greenback.
Speaking on France Inter radio, Villeroy said the Trump administration’s approach is “very incoherent,” and suggested that its recent actions “play against the confidence” typically held in Dollar.
He contrasted this with the Euro, praising Europe’s foresight in establishing its own independent monetary system 25 years ago. “Thank God that Europe… created the Euro,” he noted, adding that the bloc now enjoys “monetary autonomy” that allows ECB to manage interest rates in a way that diverges from US policy, something that was not possible in the past.
China’s consumer inflation remained in negative territory for a second straight month in March, with CPI falling -0.1% yoy, missing expectations of 0.1% yoy increase. While the decline was narrower than February’s -0.7% yoy, it still reflects subdued demand pressures across the economy.
Food prices was a drag, down -1.4% yoy, while service prices provided only modest support, rising 0.3% yoy. Core CPI, which excludes volatile food and energy prices, edged up to 0.5% yoy from 0.3% previously, offering a slight glimmer of resilience.
However, with headline inflation still hovering around zero and signs of consumer caution persisting, the broader disinflation trend appears entrenched.
On a monthly basis, CPI dropped -0.4% mom, following February’s -0.2% mom decline, suggesting continued weakness in household spending momentum.
Meanwhile, producer prices extended their decline for a 30th straight month, with PPI dropping -2.5% yoy, deeper than the expected -2.3%.
Japan’s PPI rose 4.2% yoy in March, a slight acceleration from February’s 4.1% yoy and topping expectations of 3.9% yoy rise. The increase was broad-based, with notable gains in food prices, which rose 3.1% yoy, and energy costs, with petroleum and coal prices surging by 8.6% yoy.
Despite the uptick in domestic producer prices, import costs in Yen terms fell -2.2% yoy in March, extending the -0.9% decline in February. Export prices, however, rose a modest 0.3% yoy, slowing sharply from February’s 1.7% yoy growth.
The minutes from the FOMC’s March meeting revealed growing concern among policymakers about the economic outlook, particularly amid rising uncertainty. While these discussions occurred before the dramatic escalation of the US tariff war in April, the insights remain valuable.
“Almost all” participants viewed inflation risks as tilted to the “upside”, while “downside” risks to employment and growth were also flagged—setting the stage for a policy dilemma.
Some officials highlighted that the Fed could soon face “difficult tradeoffs,” especially if inflation remains elevated while job and growth prospects deteriorate.
Notably, a few participants also warned that an “abrupt repricing of risk in financial markets” could magnify the impact of any negative economic shocks. Given what has since transpired with global markets in April, these comments seem prescient.
While the minutes may now appear somewhat outdated, they nonetheless provide a crucial baseline for understanding how the Fed might react in an increasingly fragile environment.
Minneapolis Fed President Neel Kashkari warned that the unexpectedly high and broad scope of recently imposed US tariffs has created “larger direct economic effect and larger shock to confidence”.
In a blog post today, he noted that this has increased the “hurdle” for Fed to adjust interest rates in either direction. He emphasized that due to the inflationary pressures tariffs are likely to bring in the “near term”, the bar for cutting rates is also “higher” even in the face of rising unemployment.
Kashkari expressed concern that due to uncertainty of escalating trade tensions and retaliatory measures from other countries, “risk of unanchoring inflation expectations seems to have increased notably”.
At the same time, he acknowledged that the demand for investment capital is likely to decline due to weaker growth prospects, which would naturally lower the neutral interest rate (r*). This dynamic could make current monetary policy stance relatively tighter without any Fed action.
Ultimately, Kashkari struck a cautious but flexible tone, noting that while Fed should be especially wary of cutting rates amid rising inflation risks, it must also remain responsive to rapidly changing conditions.
“No monetary policy response, up or down, should be completely off the table,” he concluded.
French ECB Governing Council member Francois Villeroy de Galhau warned today that mounting economic uncertainty from escalating trade tensions is posing risks to financial stability, particularly increasing credit risks for some financial institutions.
While he emphasized the resilience of French banks, he noted that leveraged hedge funds could come under significant liquidity pressure.
Writing in his annual letter to President Macron, Villeroy assured that both Bank of France and ECB are “fully mobilised” to safeguard financial stability and ensure adequate liquidity.
Speaking to journalists, Villeroy said the recent US announcement of sweeping “reciprocal” tariffs only adds to the case for further monetary easing. “We still have room to cut rates,” he stated.
Dutch ECB Governing Council member Klaas Knot warned today that the escalating trade war constitutes a “negative supply shock” and should be considered “stagflationary” in nature.
Knot also cautioned that as time progresses, the economic impact is more likely to “more inflationary rather than deflationary”.
ECB’s priority, he said, is to monitor how and when these tariffs start to meaningfully affect economic activity and corporate decision-making.
However, next week’s policy meeting would be too soon to revise projections.
Knot also noted that despite the growing market stress, financial market functioning has so far been “preserved”. He credited the hedge fund sector’s proactive deleveraging for this resilience, saying they were well-prepared for the turbulence and capable of meeting margin calls—unlike in past market episodes.
BoJ Governor Kazuo Ueda reaffirmed today that the central bank remains open to further rate hikes if Japan’s economic recovery continues as projected. He added that current trends in both the economy and inflation are “roughly in line” with BoJ’s forecasts.
He added that the policy board will make decisions with a “without pre-conception” mindset, and assess whether the outlook materializes as expected.
However, Ueda flagged growing concerns over trade developments globally, warning of “heightening uncertainty over developments in each country’s trade policy”.
“We need to pay due attention to risks,” he warned.
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US Michigan consumer sentiment crashes to 50.8; inflation expectations highest since 1981
US consumer sentiment plunged to 50.8 in April, far below expectations of 55.0 and down from 57.0 in March, according to the preliminary University of Michigan survey. This marks the fourth straight month of declines, with the index now down over 30% since December 2024.
The fall was broad-based: the current conditions gauge dropped from 63.8 to 56.5, while expectations fell from 52.6 to 47.2, highlighting growing concerns about economic prospects amid the intensifying trade war.
The timing of the survey is notable—it was conducted between March 25 and April 8, just before the US partially reversed some tariffs on April 9. Thus, the data largely reflects public reaction to the earlier escalation.
Perhaps the most alarming data point was the surge in year-ahead inflation expectations, which jumped from 5.0% to 6.7%—the highest since 1981. This marks the fourth consecutive month of half-percentage-point increases or more, underscoring the risk that inflation expectations could become unanchored.
Full UoM consumer sentiment release here.