Charting The Global Economy: US Inflation Picks Up Before Tariffs

As global markets and political leaders prepare for significant economic shifts, all eyes are on the United States where President Donald Trump is set to introduce new tariffs known as "Liberation Day" on April 2. This move follows his earlier imposition of tariffs on imports from Canada, which has seen Canadian economic growth come to a standstill as of February.

U.S. consumer spending fell short of expectations in February, combined with a rise in inflation rates that pose challenges for the economy just ahead of new tariffs taking effect. The inflation-adjusted consumer spending only showed a modest increase of 0.1%, which is on the lower end of predictions from economists. In January, consumer spending experienced a decline that analysts attributed primarily to severe weather conditions.

Inflation and Spending Trends

The core personal consumption expenditures price index—excluding volatile food and energy sectors—rose by 2.8% year-on-year, solidifying concerns as it remains above the Federal Reserve's target of 2%. Trump's latest economic strategy includes threats of what he terms "secondary tariffs" aimed at countries importing oil from Venezuela, signaling a broader effort to use economic pressure as leverage in international politics.

Concerns regarding the stock market's stability are growing, as President Trump's unpredictability in trade relations could significantly affect economic activities, particularly among high-income earners who are crucial to consumer spending. Meanwhile, existing tariffs on Canadian imports alongside potential upcoming duties suggest rising inflation in the U.S. is a possibility, potentially surpassing the central bank's 3% upper limit.

Global Economic Developments

UK and Europe

In the UK, retail sales have demonstrated an encouraging rebound since the beginning of 2025, as households are gradually tapping into savings accumulated over the previous year. Notably, sales of household goods have surged near 7%, marking the largest growth since April 2021, while demand for jewelry, watches, and clothing has also rebounded.

German business confidence is at its highest since June 2024 due to new political leadership and plans to invest heavily in modernizing the economy. Following recent elections, Chancellor-in-waiting Friedrich Merz's promises to enhance Germany's aging infrastructure have improved economic outlooks.

Meanwhile, France has reported a lower-than-expected budget deficit for 2024, giving its government more flexibility in managing debt levels.

Asia

India is currently evaluating U.S. requests to reduce import duties on agricultural products while pushing for exemptions from the anticipated tariffs set for next week. Australia's government has released a pre-election budget featuring unexpected tax cuts and extended energy rebates to address voters' immediate cost-of-living concerns while aiming to assure a second term for Prime Minister Anthony Albanese.

In Singapore, key inflation indicators show a continued decline as costs associated with food, leisure, and cultural activities have slowed.

Emerging Markets

Mexico’s central bank, known as Banxico, has lowered borrowing rates by half a point due to a continued decline in inflation amid threats from U.S. tariffs. This is the second consecutive half-point reduction after a series of smaller adjustments to monetary policy. In Zambia, economic growth has exceeded expectations, bolstered by a rebound in agriculture after recovering from a significant drought, along with strong performance in mining.

Global Financial Outlook

Globally, Norway has postponed a planned rate cut while other nations, including Hungary, Sri Lanka, and the Czech Republic, opted to maintain current borrowing rates. Conversely, Mozambique's central bank has lowered rates for an eighth consecutive meeting, and Tunisia has followed suit. Notably, Ghana surprised markets with an unexpected increase in interest rates.

As part of his ongoing trade strategy, Trump has signed a proclamation to enact a 25% tariff on auto imports and has promised stricter actions against the EU and Canada if they were to unite in opposition to U.S. policies.

economy, inflation, spending