Inflation pressures persist despite initial CPI relief, as key PCE components remain sticky. Trade tensions escalate with Trump threatening 200% tariffs on EU alcohol after Canada/EU countermeasures. Meanwhile, gold surges to record highs near $3,000 amid economic uncertainty and Fed rate cut expectations.

A Deeper Dive into CPI and PPI Data Suggests Inflationary Pressures May Not Be Easing Yet

Following the release of February's Consumer Price Index (CPI) on Wednesday, which showed a greater-than-expected slowdown, markets turned their focus on Thursday to producer price developments and examined key components contributing to the Federal Reserve's preferred inflation gauge.

According to the U.S. Bureau of Labor Statistics, wholesale inflation in the U.S. was unchanged in February compared to the previous month, following a revised 0.6% increase in January. On an annual basis, producer prices slowed to 3.2% from the previous 3.7%. Additionally, the core index, which excludes food and energy, fell by 0.1%, marking its first decline since July.

While the slowdown in consumer inflation provided some relief regarding inflation risks, producer inflation data initially seemed to support this relief as well. However, a closer look at the subcomponents tells a different story.

The decline in the Producer Price Index (PPI) was primarily driven by a sharp drop in trade margins. The trade services category, which reflects changes in the margins received by wholesalers and retailers, fell by 1%.

In contrast, categories contributing to the Fed's preferred inflation measure—the Personal Consumption Expenditures (PCE) price index—remained sticky. Hospital inpatient care rose by 1%, and portfolio management costs increased by 0.5%. Moreover, core goods prices, excluding food and energy, rose by 0.4%, marking the largest increase in over two years.

The drop in margins suggests that as U.S. consumers cut back on spending and demand weakens, retailers may be forced to accept lower margins. As Duhani Capital Research team, we assess that the full extent of cost increases driven by tariffs may not be entirely passed on to consumer prices, which could help slow inflation acceleration.

However, when analyzing both CPI and PPI reports at the subcomponent level, it appears likely that PCE inflation, set to be released later this month, will remain firm. Such a scenario would indicate that price pressures in the U.S. persist and could put early relief over inflation risks on hold, especially amid escalating trade tensions.

Trade War Looms as Trump and Europe Refuse to Back Down on Tariff Disputes

Donald Trump remains firm on his tariff policies and appears ready to escalate further. On Thursday, he stated that he would not lift tariffs on steel and aluminum and confirmed that he would proceed with comprehensive retaliatory tariffs on global trade partners starting April 2.

In response to Trump's latest moves, Canada and the European Union imposed counter-tariffs. However, Trump has threatened to retaliate against these countermeasures with additional tariffs.

Earlier in the week, he had threatened to increase tariffs on Canadian steel and aluminum to 50%, but later backtracked after Ontario suspended its export surcharges.

Meanwhile, tensions continued to escalate with the European Union. In response to U.S. steel and aluminum tariffs, the EU announced plans to impose tariffs on $26 billion worth of American goods.

On Thursday, Trump responded by pointing to pending duties on bourbon, warning that if these were not immediately lifted, he would impose a 200% tariff on all wines, champagnes, and other alcoholic beverages from France and other EU nations. In response, France's Trade Minister Laurent Saint-Martin stated that they would always protect their industries and would not succumb to threats.

Ultimately, both sides seem determined not to back down, and this escalating conflict appears to be moving toward a full-scale trade war.

Gold Surges to a New All-Time High: The $3,000 Mark Is Now in Sight

Amid rising trade war concerns, safe-haven demand surged, driving gold to a new all-time high above $2,993 per ounce in the early hours of Friday's session, bringing it within reach of the $3,000 mark.

Since taking office, Trump's policy decisions have heightened economic uncertainty beyond even the pandemic era, prompting both investors and central banks to flock to gold as a safe-haven asset.

Meanwhile, growing doubts about the resilience of the U.S. economy in recent weeks, along with increasing bets that the Federal Reserve will cut interest rates more than expected this year, have further boosted gold's appeal.

Looking ahead, as trade tensions continue to escalate and global economic sentiment-particularly regarding the U.S. economy-deteriorates, gold is likely to remain a key safe-haven asset for investors.

According to a note published by Macquarie Group analysts, gold could reach $3,150 in the first quarter and continue climbing toward $3,500 by the third quarter.

For the short-term outlook, traders will closely watch next week's Fed meeting for signals on policy direction and updated projections. If the Fed signals further easing in the coming period, it could provide additional tailwinds for gold.