Are Trump’s tariffs already boosting US inflation? 

Stay informed with free updates

Simply sign up to the Global Economy myFT Digest — delivered directly to your inbox.

The first hints of the impact of Donald Trump’s far-reaching tariffs are expected to show up in US inflation when figures for April are published next week.

Economists polled by Bloomberg are forecasting Tuesday’s data will show annual consumer price growth of 2.4 per cent, unchanged from March.

However, the month-on-month rate is expected to climb to 0.3 per cent after a 0.1 per cent decline in prices in the previous month. The anticipated increase is partly a result of rising demand for cars as buyers tried to act ahead of the introduction of tariffs, according to analysts at Bank of America.

“Core goods inflation likely accelerated . . . owing in part to tariffs and related consumer behaviour,” wrote BofA economists Stephen Juneau and Jeseo Park. “Tariff revenue and the effective tariff rate rose by about 2 percentage points in April, which should put pressure on goods prices more broadly. Meanwhile, we expect auto inflation rose on the month due in part to frontloaded demand in anticipation of higher prices from tariffs.”

Still, BofA characterised April’s data as representative of the calm before the “tariff storm”. Economists and investors widely expect tariffs to materially increase inflation, probably beginning this summer, when US companies have exhausted existing inventories and will need to start selling new products at higher prices. BNP Paribas analysts anticipate that year-over-year core CPI will peak at 4.4 per cent by the fourth quarter of 2026.

Markets are pricing two or three interest rate cuts from the Federal Reserve later this year, but a bigger-than-expected burst of inflation could prompt the central bank to lower borrowing costs more slowly. Kate Duguid

How strong is the UK economy?

Investors will scrutinise UK labour market and GDP figures next week for clues about the future path of monetary policy, although concerns over the reliability of some of the data will make the task harder.

Strong employment, wage growth and output figures would support the “gradual and careful” approach to lowering borrowing costs being taken by the Bank of England, which this week cut interest rates by a quarter point to 4.25 per cent. Many analysts had expected more dovish signals from rate-setters.

Employment data released by the Office for National Statistics on Tuesday will offer an early look at the impact of April’s rise in employers’ National Insurance contributions and the living wage.

Annual wage growth will provide an indication of the strength of domestic price pressures. Sandra Horsfield, economist at investment bank Investec, forecasts a slowdown in regular earnings growth to 5.6 per cent in the three months to March from 5.9 per cent in the three months to February.

“The key question at the moment is how firms are responding to the employer National Insurance Contribution hike,” she said.

But Horsfield also warned that “the reliability of these figures . . . is in doubt”. A top civil servant has been tasked with looking into the production of ONS data, after concerns were raised about the low response rate to some surveys.

Meanwhile, boosted by much stronger than expected growth in February, Thursday’s GDP data is likely to show the UK economy expanded by 0.6 per cent in the first three months of the year, according to a Reuters poll of economists.

This is in line with the BoE’s forecast and an upgrade from the 0.25 per cent growth the bank expected back in March.

But the BoE cautioned that much of the strength was due to erratic factors. It put underlying growth in the first quarter at close to zero and predicted a sharp slowdown in headline growth to 0.1 per cent in the second quarter, with risks skewed to the downside. Valentina Romei

Can German stocks continue to climb?

Germany’s Dax index hit a record high on Friday as hopes of easing trade tensions prompted investors to jump back into one of the popular trades of the year — a bet on German growth.

The index is up 18 per cent so far in 2025, while US blue-chip index, the S&P 500, is down about 4 per cent. The Dax has been lifted by Germany’s historic announcement in March that it would massively increase defence and infrastructure spending.

While it sank with other indices at the start of US President Donald Trump’s trade war, the Dax has regained ground as tensions have calmed, including on Friday after news of a positive discussion between chancellor Friedrich Merz and Trump.

However, Merz’s failure to become chancellor at the first time of parliamentary voting, before winning the second, was viewed by some investors as underlining the political risk to Europe’s economic revival.

A UK-US trade deal, said Peel Hunt’s chief economist Kallum Pickering, “sets a difficult precedent” for other deals due to its limited nature, adding that it “looks likely that US trade barriers will remain appreciably higher than before Trump took office”.

Given the near-term risks from US-EU trade talks, investors think the speed with which the extra German spending could come online might be crucial to sustaining the rally, although some worry it will not be quick. Ian Smith