Synopsis:

Nomura expects a modest rebound in March core CPI inflation, largely due to preemptive price hikes ahead of US tariffs. However, they believe this is unlikely to shift the Fed's near-term stance, with core PCE expected to remain benign in March but rise in the coming months.

Key Points:

• Core CPI (m/m) forecast: +0.278% (vs. 0.227% in February), driven by:

  • Pre-tariff front-loading of purchases.

  • Core goods price increases in anticipation of higher import costs.

• Supercore services (ex-rent and energy) likely rose to +0.294% (vs. 0.216%), reflecting:

  • Stronger lodging-away-from-home pricing.

  • A slower decline in airfare prices.

• Core PCE (m/m) forecast: +0.137%, down from February’s 0.365%.

  • Driven by softer PPI inputs, which are more relevant for PCE than CPI.

• Nomura expects the Fed to remain on hold until December, as tariff-induced inflation is expected to push up core inflation in coming quarters.

Conclusion:

While March CPI may show a modest pickup, Nomura sees this as driven by temporary factors linked to tariff anticipation. The Fed is unlikely to react to near-term prints and is expected to stay on the sidelines until year-end, as inflation pressures accumulate.