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The initial effects of Donald Trump’s extensive tariffs are anticipated to be reflected in US inflation data for April, set to be released next week.
Economists surveyed by Bloomberg are predicting that the figures for Tuesday will show an annual consumer price growth rate of 2.4 per cent, remaining unchanged from March.
However, the month-on-month rate is expected to rise to 0.3 per cent following a 0.1 per cent decrease in prices the previous month. Analysts at Bank of America attribute this anticipated increase to a surge in demand for cars as buyers rushed to make purchases ahead of tariff implementations.
“Core goods inflation is likely to have accelerated…partly due to tariffs and related consumer behavior,” wrote BofA economists Stephen Juneau and Jeseo Park. “Tariff revenue and the effective tariff rate increased by about 2 percentage points in April, which is expected to exert pressure on goods prices more broadly. In addition, we anticipate that auto inflation increased due to heightened demand in anticipation of tariff-induced price hikes.”
Despite this, Bank of America described the April data as the calm before the “tariff storm”. Many economists and investors anticipate that tariffs will significantly raise inflation levels, possibly starting this summer as US companies deplete existing inventories and are forced to sell new products at higher prices. Analysts at BNP Paribas project that core CPI on a year-over-year basis will peak at 4.4 per cent by the fourth quarter of 2026.
Market expectations currently include two or three interest rate cuts by the Federal Reserve later in the year, but a higher-than-expected inflation surge could lead to a slower pace of interest rate reduction by the central bank. Kate Duguid
Assessing the Strength of the UK Economy
Investors will closely examine UK labor market and GDP data next week to gain insights into the future monetary policy direction, although concerns about data reliability may complicate the analysis.
Positive employment figures, wage growth, and output data would support the Bank of England’s cautious approach to lowering interest rates, as evidenced by this week’s quarter-point rate cut to 4.25 per cent. Many analysts had anticipated a more dovish stance from rate-setters.
The employment data released by the Office for National Statistics on Tuesday will provide early indications of the impact of the April rise in employers’ National Insurance contributions and the living wage.
Annual wage growth figures will offer insights into domestic price pressures. Economist Sandra Horsfield from investment bank Investec predicts a slowdown in regular earnings growth to 5.6 per cent in the three months ending in March, down from 5.9 per cent in the previous three-month period.
“The main question at the moment is how companies are reacting to the increase in employer National Insurance Contributions,” she stated.
However, Horsfield also cautioned that “the reliability of these figures…is in question”. A senior civil servant has been tasked with reviewing ONS data production due to concerns about the low response rates in some surveys.
Additionally, boosted by unexpectedly strong growth in February, the GDP data to be released on Thursday is expected to show a 0.6 per cent expansion in the UK economy in the first quarter of the year, according to a Reuters poll of economists.
This aligns with the BoE’s forecast and represents an upgrade from the 0.25 per cent growth predicted back in March.
Nevertheless, the BoE cautioned that much of this growth was influenced by erratic factors and estimated that underlying growth in the first quarter was close to zero. The bank also foresees a significant slowdown in headline growth to 0.1 per cent in the second quarter, with downside risks. Valentina Romei
Sustainability of German Stock Market Growth
Germany’s Dax index reached a record high on Friday as optimism about easing trade tensions encouraged investors to re-enter one of the year’s popular trades – betting on German economic growth.
The Dax has seen an 18 per cent increase so far in 2025, while the US S&P 500 index has declined by approximately 4 per cent. The Dax’s performance has been driven by Germany’s significant announcement in March regarding a substantial increase in defense and infrastructure spending.
Although it initially suffered alongside other indices at the onset of President Donald Trump’s trade disputes, the Dax has regained ground as tensions eased, particularly following positive discussions between Chancellor Friedrich Merz and Trump on Friday.
However, some investors view Merz’s failure to secure chancellorship in the initial parliamentary vote, before succeeding in the second round, as highlighting political risks to Europe’s economic recovery.
Commenting on a UK-US trade deal, Peel Hunt’s chief economist Kallum Pickering stated that it “sets a difficult precedent” for other agreements due to its limited nature, and suggested that “US trade barriers are likely to remain significantly higher than before Trump took office”.
Given the near-term risks associated with US-EU trade negotiations, investors believe that the speed at which the additional German spending is implemented could be crucial in sustaining the market rally, although some express concerns about potential delays. Ian Smith