The Goods sector has done most of the legwork in bringing down underlying inflation in the last 6 months. But with fresh tariffs on Chinese goods coming in, improvements in underlying inflation will depend on where core services inflation goes from here.
With today's CPI figures showing a slight easing in month to month core inflation (0.3% in April, down from 0.4% in March), markets seem to have responded with some relief (QQQ +1% at time of writing).
The 'good' news for inflation is that core retail sales were revised lower from 1% to 0.9% in March, followed by a tame 0.2% in April (headline Retail sales were flat on the month). And the International Energy Agency revised lower it's forecast of global oil demand off the back of mild weather in Europe and a softer global economy.
However, there are some reasons for caution. China-US relations certainly look like they will be a casualty of the US election this year, with Biden announcing $18bn worth of tariffs
on Chinese goods this week (in particular EVs, solar cells, steel and aluminium products).
In the last 6 months, the goods sector has done most of the leg work in bringing inflation down. Going forward, an improvement in underlying inflation is going to become more dependent on shelter and transportation services.
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