'US inflation: So far so good'

 January's inflation figures confirm the disinflationary trend. But the threat of tariffs still looms, and the momentum could be reversed in the coming months. At least, that's what consumers are anticipating.

No surprises this Friday. The PCE, the Fed's preferred inflation indicator, came out in line with expectations. These figures confirm the disinflationary trend and bring us a little closer to the 2% target. Even so, there's no guarantee that we'll reach this target. Firstly, because base effects are positive at the start of the year, but will be less so thereafter. Secondly, because Donald Trump is constantly raising the threat of tariffs.

PCE data, January 2025. Source: Zonebourse

The spectre of tariffs 

Tariffs that could be imposed by the new US administration are raising fears of a return to inflation. For the time being, only additional tariffs of 10% on China have come into force. Those on Mexico and Canada are due to be applied on Tuesday March 4. But between now and then, Donald Trump may change his mind several times over. Since his return to office, this threat has been constantly raised. And even if no tariffs go into effect, the threat alone could end up impacting inflation. Because inflation expectations have already risen. And inflation is a mechanism of self-fulfilling expectations: if everyone thinks there will be more inflation, there will be more inflation.

1-year Inflation expectations - Michigan Survey

In parallel with the inflation figures, the trade balance figures were published. In January, the US posted a record deficit of $153 billion. Fear of tariffs prompted consumers to anticipate some of their purchases, and companies to build up inventories. With the trade deficit one of Donald Trump's obsessions, these figures are unlikely to appease the White House tenant, or his desire to impose tariffs.

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