Investing.com -- U.S. inflation slowed more than expected last month data showed on Thursday, but it's too early to bet that the wheels on the deflation train are starting to turn once again, Morgan Stanley (NYSE:MS) said, warning that tariffs will likely give inflation a boost in the coming months.
Data on Thursday showed the consumer price index, or CPI fell 0.1% in March, well below Morgan Stanley's expectations of 0.23%, taking core inflation to 2.8% for the year and headline to 2.4% year-on-year, down from the prior's months 3.1% and 2.8%, respectively.
Despite the soft print, "we think inflation will start to accelerate in May/June due to tariffs," Morgan Stanley economists said in a Thursday note.
The downward surprise in inflation was mostly explained by the weakness in hotels, airfares and motor vehicle insurance.
Goods inflation returned to negative territory falling 0.09% month on month, but that was widely expected and mainly due to "the continued fading effect of wildfires pushing used car prices, deceleration in apparel inflation, and a lower print in other goods," the economists said.
The tariffs rolled out by the Trump administration and the countermeasures imposed by countries, most notably China, have yet to show push up prices.
"New cars accelerated but little. Goods with a high share of Chinese imports showed mixed evidence; apparel and appliances decelerated, and furniture and information technology commodities both ticked up," Morgan Stanley said
The U.S. announced that it tariffs on China had been hiked to 145%, while China levies on U.S. imports stood at 84%.
