U.S. producer prices did not change in February, contrary to expectations, reigniting the debate over the future of monetary policy and its impacts on the markets. However, this stability may not last long, as experts expect recent tariffs to lead to rising prices in the coming months.
Inflation data developments and their impact on the markets
The U.S. Bureau of Labor Statistics released its monthly report, indicating that the final demand Producer Price Index remained steady in February, after a January increase adjusted to 0.6%. Expectations had pointed to a 0.3% increase, reflecting an unexpected decline in price pressures.
Year-over-year, the index rose by 3.2% through February, compared to 3.7% in January, reinforcing the view that inflationary pressures are beginning to slow down, but in a way that may not be sustainable amid rising trade tensions.
Tariffs.. Will they reignite inflation?
The U.S. economy is facing new challenges as the trade war escalates, with the United States imposing a 20% tariff on goods coming from China, prompting Beijing to respond in kind. Washington also imposed a 25% tariff on steel and aluminum imports from Canada and Mexico, while granting temporary exemptions for some goods.
Analysts warn that these tariffs could lead to higher production costs, which will gradually reflect on consumer prices in the coming months. Economist Mark Johnston says:
"Inflation may seem under control now, but the new tariffs will pressure supply chains, gradually raising prices. The impact won't be immediate, but it will show up in Q2 data."
The future of U.S. monetary policy
With inflation slowing down, the Federal Reserve has justification to keep interest rates in the range of 4.25% - 4.50% during its next meeting. However, markets expect the Fed to start cutting interest rates in June, especially if the economic slowdown continues and concerns about recession increase.
It is worth mentioning that the U.S. Federal Reserve raised interest rates by 5.25 percentage points between 2022 and 2023 to curb inflation, which made borrowing costs high and affected business growth and investments.
How are the markets reacting?
Gold: Gold futures rose by 0.24% to $2954 per ounce, reflecting increasing demand for it as a safe haven.
Dollar: Dollar index futures fell by about 0.4% to 103.98 points, amid expectations of future interest rate cuts.
Stocks: Markets remain cautious as investors avoid risk amid uncertainty over upcoming economic decisions.
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