U.S. March inflation unexpectedly "stalled," making it difficult for the economy's 'breathing space' to last

According to Zhitong Finance APP, on the eve of the official implementation of tariffs, a set of "mixed" data has emerged from the U.S. economy. The Federal Reserve's preferred inflation indicator saw almost no increase in March, while consumer spending showed strong performance. This provides a brief respite for economic operations before facing upward price pressures in the future.

Zhitong Finance APP learned that according to data released by the U.S. Bureau of Economic Analysis (BEA) on Wednesday, the Personal Consumption Expenditures Price Index (PCE) remained flat month-on-month in March, marking the first "zero growth" in nearly a year. The core PCE, excluding food and energy prices, also remained flat month-on-month, achieving the mildest performance in nearly five years, indicating a temporary easing of inflationary pressures.

Meanwhile, inflation-adjusted consumer spending increased by 0.7% month-on-month, higher than the previous value, and the data for the previous month was revised upward. This suggests that American consumers may be accelerating their spending in an attempt to purchase goods ahead of a new round of tariffs that could significantly raise prices.

Despite a slowdown in overall economic performance in the first quarter, the U.S. economy recorded its first quarterly contraction since 2022, primarily due to a surge in imports and moderate consumption growth. However, data shows that the annualized growth rate of core PCE in the first quarter reached 3.5%, a new high for the year, indicating that inflation still poses an upward risk.

Following the data release, the financial market reacted complexly. The S&P 500 index fell, volatility in the U.S. Treasury market increased, and the dollar strengthened. This reflects investors' conflicting sentiments about the economic outlook, with short-term inflation easing and strong consumption on one hand, and tariff pressures and uncertainty in corporate prospects on the other.

It is noteworthy that March saw the strongest growth in real disposable income in over a year, providing important support for consumption, particularly driving spending on durable goods such as automobiles to the largest increase since early 2023. Service spending also rebounded, especially in the dining sector.

From a price composition perspective, in March, the prices of goods excluding food and energy saw a decline for the first time, while core service prices excluding housing and energy remained nearly flat, marking the mildest growth since 2020, further alleviating market concerns about persistent inflation.

However, economists generally believe that once tariffs are officially implemented, companies are likely to pass on some of the additional costs to consumers, although some retailers have indicated that they will absorb part of the cost pressure in the context of weakened consumer purchasing power.

Currently, companies including fast fashion giant Shein and consumer goods giant Procter & Gamble (PG.US) have begun to raise prices or are planning to do so. Meanwhile, companies like American Airlines (AAL.US) and General Motors (GM.US) have withdrawn their performance guidance due to policy uncertainty, reflecting increasing caution among businesses regarding the outlook.

Overall, although inflation temporarily eased in March and consumer performance was strong, providing support for economic operations, with the full implementation of tariff policies, prices may face a new round of upward pressure, which could suppress consumer behavior. The Federal Reserve may face a more complex balancing act in formulating its interest rate policy