Inflation: Uncertain Trend

The US Bureau of Statistics has just (April 10) revealed inflation for March 2025. The increase was 2.4% on March 2024 and therefore a drop from 2.8% recorded in February. This was better than expected and by itself would point to lower interest rates. However, the US imposition of tariffs points to a resumption in domestic inflation. At the same time there are indicators of a slowing economy, some due to trade uncertainty.

On this side of the Atlantic the preliminary figure for March for the EU shows a slight further drop from 2.4% to 2.2%, Maybe the decline in inflation in most of 2024 heralds the end of inflation in the EU. But in Ireland the preliminary March figure shows a jump from 1.3% in February to 1.8%. The more recently published Consumer Price Index, shows a more modest jump from 1.8% in February to 2%. Food prices are the main cause of the acceleration.

In both the EU and the US the inflation rate is outside the 2% target area set by the respective monetary authorities. This did not deter the ECB from reducing interest rates to 2.5% at its March meeting – the sixth cut since June 2024. Inflation notwithstanding, The ECB is cautious about further cuts because of uncertainty following the Trump administrations tariff policy. In the US, despite the expressed preferences of the incoming administration, the latest figures, together with ongoing evidence of strong economic activity was enough to prompt the Fed to hold interest rates steady at 4.25%. The chaotic situation brought about by the recent tariff announcements are further grounds for caution.

The second graph shows some detail on the Irish CPI. Inflation in the main upward influences at work in 2023 – housing, transport and food – have all weakened markedly through 2024. But Transport inflation, after a steep fall in Autumn 2024 has jumped ahead of the average. The most important factor, however, is food which followed the same pattern as the general but is now rising sharply again.

Oil and gas are critically important commodities and major influences on prices. In most of 2024, gas has been increasing in price while oil has been falling. Since the end of October gas futures rose sharply but have recently dropped back. Some easing of the geopolitical situation has helped. Oil has followed the pattern in recent months though more moderately. The trends have underwritten the general downward trend in inflation noted above.