MNI US Inflation Insight: No Tariff Surge Realization In March

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• Core CPI inflation was markedly softer than expected in March at 0.06% M/M (MNI unrounded median 0.24) after 0.23% M/M.
• The main inflation aggregates all surprised lower, with supercore notably softer (-0.24% M/M after 0.22%).
• The miss was driven by volatile components, with a large decline in lodging away from home along with CPI-specific airfares and vehicle insurance.
• It meant a large miss for the Y/Y at 2.79% (consensus firmly centered on 3.0%) for the lowest since Mar 2021.
• Recent run rates remain hotter, suggesting some upward momentum ahead in the Y/Y, but by much less than was expected to have been the case: both three- and six-month rates eased to 3.0% annualized.
• Friday’s PPI release saw notably weaker than expected input cost pressures although core measures weren’t as weak. The PCE-relevant details were broadly neutral for March but implied a large upward revision to Feb.
• Core PCE estimates have coalesced at a ‘low’ rounded 0.1% M/M for March after a wide range following CPI. It implies a significant moderation from what is currently seen as a strong 0.365% M/M in February but likely one that has a good chance of rounding to 0.5% M/M in February after revisions.
• Both inflation releases saw a dovish reaction, with CPI’s larger and longer lasting, although they have been secondary to market sentiment driven by tariff alterations and exemptions.
• Putting politics aside (if possible), the solid payrolls report for March, a raft of Fedspeak calling for patience and some booming inflation expectation surveys has helped see pricing for a May cut fade to 6-7bp vs 15bp before payrolls on Apr 4.
• A next Fed cut is no longer fully priced in June but is seen as highly likely (21.5bp) as part of a path with 81bp of cuts for 2025.