Weekly Review: March CPI Reveals Inflation Progress Amid Trade Tensions

President Trump announced a 90-day deferral of higher reciprocal tariffs for most U.S. trading partners to facilitate negotiations. However, China was excluded from the pause, with the U.S. administration escalating tariffs on Chinese imports, first by doubling them and later increasing them to 145%. In retaliation, China imposed additional duties on U.S. goods in two phases, first raising them to 84%, and then to 125%. Beijing criticised the U.S.’s latest tariff increase, describing it as a "numbers game" with no meaningful economic impact. A Ministry of Commerce spokesperson indicated that if the U.S. continued with this strategy, China would disregard it.

The minutes from the Federal Reserve's March meeting revealed that policymakers saw increased downside risks to economic growth and employment, while inflationary pressures were expected to rise due to higher tariffs. There was significant uncertainty surrounding the economic outlook, leading most members to favour a cautious approach to monetary policy. While the Fed remains ready to adjust policy as needed in response to incoming data, members noted the possibility of difficult trade-offs if inflation proves more persistent, while growth and employment face downward pressures.

The Bureau of Labor Statistics released March's Consumer Price Index (CPI) data, showing a moderation in inflation. The headline CPI declined by 0.1% on a seasonally adjusted basis, lowering the year-on-year inflation rate to 2.4% from 2.8% in February. Core inflation, which excludes food and energy, rose by 0.1% month-over-month, marking the smallest increase in nine months. On an annual basis, core inflation increased by 2.8%, the lowest 12-month rise since March 2021.

Meanwhile, the University of Michigan reported a sharp increase in its Index of Consumer Sentiment’s year-ahead inflation expectations, which surged to 6.7% in April, the highest level since 1981. This spike reflects growing concerns about trade war developments, which have fluctuated throughout the year, contributing to heightened uncertainty about future inflation and economic stability.

The UK economy grew by a faster-than-expected 0.5% in February, driven by stronger services output. On a year-over-year basis, GDP rose 1.4%, surpassing consensus estimates. The Office for National Statistics highlighted broad-based growth across all sectors, including a notable recovery in the manufacturing industry, which bounced back from a long downturn. 

China’s consumer prices contracted for the second consecutive month, with the Consumer Price Index declining 0.1% year-on-year in March, following a 0.7% contraction in February, according to the National Statistics Bureau. Core inflation, which excludes volatile food and fuel prices, rose 0.5%, rebounding from a 0.1% drop in February, though still lower than the 0.6% growth recorded in January. Meanwhile, producer price deflation deepened, with the Producer Price Index falling 2.5% year-on-year in March, marking the 29th consecutive monthly decline and the largest contraction since November 2024.

U.S. equities ended the week higher, recovering from earlier volatility as trade-related headlines continued to steer investor sentiment. The Nasdaq Composite outperformed with a 7.29% gain, followed by the S&P 500, which rose 5.70%, and the Dow Jones, up 4.95%.

In contrast, European markets declined, with the Euro Stoxx 50 down 1.87% and the UK’s FTSE 100 falling 1.13%, amid escalating trade tensions.

In Asia, Japan’s Nikkei 225 slipped around 0.6%, while mainland Chinese markets also ended lower—the Shanghai Composite lost 3.11%—though expectations of fresh policy support helped limit further downside. The Hang Seng Index in Hong Kong saw a sharper

drop, falling 8.41% over the week.

Market Moves of the Week:

The African National Congress (ANC) has reaffirmed its commitment to the Government of National Unity (GNU) but has voiced growing frustration with the Democratic Alliance, calling for a “reset” in the coalition arrangement. Following a National Working Committee meeting, ANC Secretary General Fikile Mbalula announced that the party intends to “hit the reset button” and re-engage with parties both within and outside the GNU. The move comes amid a deadlock over the 2025 budget, which has highlighted deep divisions within the unity government.

The All-Share Index partially recovered from last week’s losses, rising 5.95% over the week, supported by broad-based gains across all sectors. The Resource sector led the rebound, surging 20.05% and contributing the most to the overall recovery. The rand weakened slightly against the U.S. dollar to R19.12/$ but recovered somewhat from the record low of R19.93/$ reached earlier in the week. Meanwhile, South African government bonds held relatively firm, with the 10-year yield easing by 7 basis points over the week.

Chart of the Week:

March CPI data came in stronger than expected, offering reassurance that inflation pressures are easing. Core inflation remained contained, and sticky prices—on goods less responsive to market shifts—fell to their lowest level since early 2022. Although food prices edged higher, the overall report signalled progress in taming inflation. However, despite this positive news for U.S. consumers, the dollar weakened globally, as investor attention shifted to uncertainties around tariffs and broader confidence in the economic outlook. Source: Bloomberg

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Source: STRATEGIQ Capital, an authorised financial services provider (FSP 46624)