Archive

US Consumer Pricing Still Ignores Tariffs

• Another downside surprise in headline US inflation reflected the lack of pass-through from tariff increases, with headline and core rates of only 0.1% m-o-m in May.
• Commodities, less food, energy and car prices stalled as airfares and apparel fell again. But services (ex-shelter) inflation stayed too high to be consistent with the target.
• Low headline rates raise dovish political pressure and the risk of a cut, but the tight labour market should encourage the Fed to keep rolling potential cuts later.

By Philip Rush

Trade Avoidance Easing Shocks

• China’s crashing exports to the US partly reflect avoidance measures, including rerouting through other countries and marking down import prices to subsidiaries.
• Exports to the EU and UK are only trending slightly higher, making little difference to disinflation. ASEAN countries, and especially Vietnam, are seeing trade surge again.
• The US may clamp down on avoidance measures that have eased the shock so far. It could make a painful example of one to encourage concessions from all trade partners.

By Philip Rush

US vs EU: Mutually Assured Destruction?

• The consensus over Section 899 is that it is about leverage and deterrence, and that it is unlikely ever to be fully deployed, given the damage it would do to the US itself. However, what if the EU, in particular, calls Mr Trump’s bluff and/or it is intended even in part as a revenue-raising measure?

By Alastair Newton

HEM: Better Never Than Late

• Companies are smoothing out volatile trade policies
• Activity remains strong and labour markets are tight
• Underlying price and wage inflation is still too high
• Markets expect cuts to resume later, contrary to history
• The risk of rate hikes in 2026 is widely underappreciated