Deflation and inflation

10 Mar 2025 2 min read

Daily update

China鈥檚 consumer prices moved into deflation in February. Some of this is due to the timing of the lunar new year, and some of it is the impact of warmer weather on food prices (food has a higher weighting in China鈥檚 inflation calculation than in developed economies). However, markets are concerned that the low inflation environment does not suggest robust domestic demand.
US President Trump faces a different problem, conceding that there may be higher inflation ahead. While tariff retreats have been rapid, the threat may still allow companies to sell a story of necessary price increases. Some companies may also increase prices in anticipation of tariffs that never actually happen.聽 The New York Fed鈥檚 survey of inflation expectations is due鈥攏ot reliable as a prediction, but perhaps signaling whether consumers are concerned.
Trump also failed to rule out a recession. After the 2024 soft landing, markets are getting more concerned about economic growth risks. As the pandemic illustrated, supply chain disruption can create growth problems. Disruption to trade and government both raise risks.
German January trade and industrial production data are due, and relevant in the current political climate (although most German trade is, of course, with Europe). Italian producer price inflation is scheduled.