US DATA: Import Prices Pick Up, But Tariff Impact Remains Unclear
Ex-petroleum import prices rose by the most in 12 months in April on a sequential basis, at 0.40% M/M, vs -0.24% prior, and well ahead of the 0.1% expected. However, March's was revised down to -0.24% (0.00% pre-rev), and this is a non-seasonally adjusted series so the Y/Y change actually suggested disinflationary price pressures at 1.3% vs 1.5% prior and well down from 2.3% at the end of 2024.
- As such even with the strong M/M reading, the headline figures are ambiguous as to whether this is indicative of a sustained pickup in prices going into the 2nd quarter of the year.
- There is a very large caveat here that the import price indices do NOT take account of tariffs (which are considered taxes in the national accounts).
- If anything, were exporters to take part of the "hit" of US consumer tariffs, one would expect US import prices to moderate in the quarters ahead, but this would not translate into weaker consumer prices if firms pass along those higher import prices (and vice-versa, with sustained higher import prices suggesting US consumers will be absorbing the hit).Any one month of data should be interpreted with caution.
- The higher M/M April PPI could be indicative of stockpiling effects as importers rushed to build supply, among other factors.
- Even so, the details in tariff-sensitive categories were not benign in April. Capital goods imports saw the highest sequential increase (0.6% M/M) since January 2022, led by "computers, peripherals, and semiconductors and for scientific and medical machinery." And automotive vehicle import prices rose 0.2%, the most since October 2024.
- And consumer goods import prices rose for the first time since October 2024 (0.3%), though the report notes "higher prices for coins, gems, jewelry, and collectibles
contributed to the increase", potentially more suggestive of rising bullion prices. Though textile / apparel prices saw their biggest rises since early 2022, and electrical equipment/appliance/component manufacturing import prices soared to their highest in at least a decade (2.8% M/M). - In terms of country of origin, import prices from China fell 0.1% M/M - the fifth consecutive monthly decline (there hasn't been an increase since October 2022), "\driven by lower miscellaneous manufacturing prices", and meaning the Y/Y figure was -1.3%, the largest drop since Aug 2024. Import costs from Japan, Mexico, and Canada (non-manufacturing for the latter two, looking commodity-price related) also fell while those from the EU increased.
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BONDS: Incremental Fresh Session Lows For TY Futures Before Bonds Stabilise
Post-data reaction and fresh session highs for crude see TY futures register an incremental session low, before finding a base as crude pulls back from best levels and e-mini futures edge lower, allowing Bund and gilt futures to find support before bears can test session lows.
EUROZONE DATA: Easter Timing Weighs On Services Inf, Other Components Sticker
The March pullback in Eurozone services inflation was heavily impacted by the timing of Easter, with non-travel/tourism related categories looking firmer. While this won’t stand in the way of a 25bp cut on Thursday, it may add tension within the Governing Council around how far into the 1.75-2.25% neutral range the ECB can go. For now, growth risks related to tariffs and associated uncertainty clearly dominate the ECB’s reaction function, but services stickiness adds risk to sub-2% policy rate forecasts.
- Annual services inflation was 3.45% Y/Y, versus a 3.42% flash and 3.68% in February).
- Package holiday inflation was 0.87% M/M, corresponding to a 2.92% Y/Y rate (vs 7.94% prior). That’s likely due to the timing of Easter, which fell in March last year but is in mid/late-April this year. Accommodation services (4.11% Y/Y vs 4.64% prior) and airfares (-4.54% Y/Y vs 1.52% prior) also eased, also driven by Easter-timing effects.
- Meanwhile, other services categories were stickier. Services related to recreation and personal care, excluding package holidays and accommodation ticked up to 3.72% Y/Y (vs 3.65% prior), while communication, housing and miscellaneous services inflation also rose on an annual basis.
- In the latter category, we note that insurance inflation re-accelerated to 8.78% Y/Y, from 7.77% in February and 8.04% in January.
- The ECB’s seasonally adjusted services inflation index was revised up 0.03pp to 0.30% M/M in March, after incorporating the final Eurostat data from this morning (NSA monthly services inflation was revised to 0.44% vs 0.41% flash). That’s then the fourth consecutive month that sequential services inflation has rounded to 0.3% - almost 4% on an annualised basis.
US DATA: NY Fed Services Outlook Weakest Since Pandemic Depths Or 2009
The headline NY Fed services activity index was weaker than expected in April as it failed to bounce, suggesting little upside to ISM Services after the weaker than expected 50.8 for March. However, the expectations components are particularly negative and suggest the rare pessimism in Tuesday’s manufacturing counterpart was no anomaly.
- The NY Fed services business activity index was weaker than expected in April as it failed to bounce and instead dipped to -19.8 (cons -12.1, 4 responses) after -19.3 in March.
- Other important details within the report were notably glum, with the current business climate falling further to -60.7 from -51.7 (-21.8 in Jan having averaged -24.5 in 2024 for example) to its lowest since Feb 2021.
- The six-month ahead readings broadly echo the sharp decline seen in its manufacturing counterpart released yesterday with its weakest outlook since Sep 2001.
- Here, six-month ahead business activity fell from -3.3 to -26.6 (vs 30.3 in Jan and 21.1 in 2024) for its lowest since Apr 2020 and before that Feb 2009.
- Expectations of the business climate six-months ahead meanwhile fell from -26.9 to -50.0 (vs 13.2 in Jan, 4.6 in 2024) for the lowest since Mar 2009.
- From the press release (in full here): “The future employment index turned negative. The future supply availability index dropped to -36.1, with 44 percent of firms expecting supply availability to be worse in six months. Capital spending plans turned sharply negative.”
- As with the manufacturing report, survey responses were collected between Apr 2-9 and therefore captured initial fallout from Apr 2 “Liberation Day” tariff announcements and the various changes since then.
