U.S. tariffs rose sharply in early April, but a ramp up in Q1 inventories by businesses is expected to delay the full impact on consumer prices. Q1 imports surged higher, in part as businesses built up inventories in anticipation of disruptions to satisfy near term consumer demand and avoid raising prices.
The core U.S. Consumer Price Index (excluding food and energy) is expected to have stayed at 2.8% year-over-year in April, as rent inflation broadly continues to moderate. Energy inflation likely dropped further below year ago levels despite April’s slight gasoline price increase. Overall, headline CPI likely eased to 2.3% in April from March’s 2.4%.
Still, the details will be closely monitored for early price impacts from substantial tariff hikes already imposed in February and March. Those include the spike to a 25% average tariff on imports from China and new steel and aluminum tariffs. These earlier increases may already appear in products like motor vehicles, parts, and certain Chinese-sourced consumer goods like apparel and electronics.
Early signs that trade tensions could de-escalate make risks around our base case outlook more balanced compared to a month ago, when risks were firmly tilted to the downside on growth and to the upside on inflation. But, without a significant pullback in actual tariff rates imposed, U.S. inflation is still expected to accelerate in coming months, and core CPI to rise above 4% later this year.
Week ahead data watch
Canadian manufacturing and wholesale sales likely declined by 1.9% and 0.3%, respectively in March, aligned with Statistics Canada’s preliminary estimates. Lower petroleum prices and weaker demand tied to steel and aluminum tariffs likely contributed to manufacturing weakness.
Advanced regional data shows continued cooling in Canada’s home resale market in April. Most markets experienced annual sales declines with increasing price pressures. National resale data in the coming week is expected to confirm these trends.
U.S. retail sales are expected to decline 0.4% after jumping 1.5% in March. Unit auto sales fell 3% in April after jumping 12% in March.
