Cutting confidence more than spending

13 Mar 2025 2 min read

Daily update

  • ECB President Lagarde almost sounded like an economist yesterday, noting inflation pressures could go up or they could go down. While highlighting the increased economic uncertainty of 2025, Lagarde confirmed market expectations that the direction of ECB rates is down. There are seven ECB speakers jostling for media attention today.
  • Much global economic uncertainty originates with US trade policies and government cuts. However, the government cuts have mainly reduced job security and efficiency to date—government spending rose 7% y/y in February. The risk is that sentiment or “animal spirits” is being damaged without any fiscal savings.
  • US February producer price inflation is due after a slightly lower consumer price inflation release. As with consumer prices it is too soon for trade taxes to show up in the data. Tax increases hit prices once stocks have been depleted, which takes some time.
  • Producer prices better reflect corporate pricing power than do consumer prices. Pricing power is also important in determining how much of a trade tax is passed along the supply chain (ultimately to consumers). Because of the political sensitivity it may be worth looking at food prices in today’s data. Egg prices are an internet meme, but did rise 186.4% y/y at the producer level last month.
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