Sree Kochugovindan, senior economist at Aberdeen, reviews the latest U.S. inflation print and the impact that U.S. President Donald Trump's regime is having on consumer sentiment.

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Donald Trump has signed an order to impose tariffs imports into the U.S. from countries including China, Mexico and Canada.

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Sree Kochugovindan, a senior economist at Aberdeen, has articulated the complex dynamics affecting consumer sentiment amidst the current economic climate in the United States. The discussion focuses on the latest U.S. inflation reports and the influence of tariff policies on economic indicators. According to Kochugovindan, while there is some relief concerning the current trend of disinflation, highlighted by a slowdown in shelter costs, there remains concern due to some volatile components in the inflation data. Federal Reserve Chair Jerome Powell has emphasized this point, suggesting that more time is needed to fully understand these distortions.

There is an ongoing uncertainty regarding tariffs and their potential impact on inflation, which poses a concern for Federal Reserve decision-making related to interest-pace easing. The threat of tariffs looms over goods inflation, placing it as a significant risk factor for U.S. pricing structures. Nevertheless, some aspects of the inflation numbers have been positive, indicating a deceleration in various cost elements which aligns with favorable economic outcomes.

Kochugovindan also points to growing concerns about the weakening U.S. consumer sentiment, which have been suggested by recent consumer surveys and retail sales figures. This signals a potential risk of recession, albeit low, which resurfaces in economic discourse. The ongoing ambiguity surrounding tariff policies substantially affects both consumer and business sentiments, requiring clearer guidance for more decisive economic actions.

In terms of global implications, Kochugovindan addresses the possible retaliatory responses from Europe and Canada to U.S. tariffs, hinting at the complexity of international economic relationships. The outcomes of these tariff measures could impact European economies, depending on whether they are permanent or part of a broader negotiation strategy. Europe’s economic recovery remains fragile, and shifts in fiscal policy will play a determining role in future developments.



Uncertainty on tariffs is affecting consumer sentiment, economist says

I think that's right. There was definitely a relief that disinflation trend is still intact. It's going in the right direction. However, for the Fed, we need to remember what Powell has reminded us, that there is a lot of noise in the data recently. There are some volatile components within the inflation number that are perhaps distorting it potentially, so we need to get a clearer read over the coming months. But we also have the uncertainty around tariffs and how that could filter into inflation over the course of the coming months. I think for now, yes, there is a relief. It is going in the right direction. But we need some clarity in terms of the impact of tariffs for the Fed to really start to determine the direction – the pace of easing from here. Indeed. The tariff threat around goods inflation and what happens to pricing, they're clear in present danger. But what was welcome in the numbers yesterday? What did you see that was encouraging around the inflation print? I think within that, the shelter component, the fact that that was slowing down, there wasn't – the easing in core is important. But in terms of that translation to core PCE, I would be a little bit cautious, particularly in the core services. We need to see today's PPI number in order to really see if that easing really feeds into core services within the PCE component, because that is the number that the Fed will be focusing on. So, still a few moving parts there. But overall, I would say that the underlying components of that number, they were all – most of them were slowing and moving in the correct direction. Sri, we're all trying to build a picture of how the U.S. consumer is doing. And the old adage goes, you should never underestimate the strength of the U.S. consumer. They surprise us time and time again. They bailed out the economy more times than I can count. But the signals suggest that we are seeing a weakening in the U.S. consumer. What is your read? And how do these CPI numbers feed into the picture? I think that the two are obviously connected, as you suggest. And recently, I think there's been a bit of concern in terms of the signals we're getting from consumer sentiment surveys and some of the retail sales numbers as well, and not just the consumer business sentiment survey. So, the R word is back on the table. We are looking at very low risk of recession, but the recession risks are being mentioned again as part of the narrative. I would say that if you look at the sentiment surveys, there was a surge in the initial aftermath of the election. And that's being pulled back now. I think some of the uncertainty around the tariff policy is filtering through into consumer sentiment as well as business sentiment. And that is a concern if this is persistent. The sooner we get some clarity in either direction, the sooner everybody can start making decisions, whether it's purchases or investments. Sri, let me ask you about the implications for the European economy from these tariffs that have been threatened by the United States. Do you think that higher U.S. tariffs are going to be disinflationary for Europe? I think what we're seeing is a series of retaliation. So, I think it really depends on a couple of things. We are looking in terms of scenarios rather than we have a baseline forecast and scenarios around that. And what we are seeing at the moment from Europe and from Canada are retaliation in response to some of these measures that are being put in place. So, are these measures permanent or are they a negotiating strategy? And I think that's the key question for all of the economies, whether it's for the U.S. or for Europe. And obviously, the European recovery has been quite fragile, but we've seen some very meaningful shifts in terms of fiscal policy. So, there, we need to think about what is that overall impact over the course of the next 10 years.

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