Affording a war

Daily update

US March consumer price inflation gives insight into US consumers’ war burden (albeit with some data accuracy concerns). Affordability is one investor concern. Affordability issues rely on inflation perception, driven by prices of high frequency purchases like food and fuel. Affordability is a political issue—the worse the crisis, the more likely the administration attempts policies to resolve, or distract.
Consumers’ ability to spend is also a concern. Hopefully, US consumers will continue to adjust savings to pay higher prices. Yesterday’s February personal consumer expenditure deflator release showed inflation concentrated inflation pressures—which mitigates the broader damage to spending power. Furniture prices have risen sharply, for instance, but only matter to people refurnishing their houses right now.
Traders do not want to have to think about pricing complex downside war risks ahead of the weekend, and have inevitably chosen optimism ahead of Iran-US talks. As investors weigh the balance of power, US President Trump’s social media posts about tariffing ships passing the Strait of Hormuz have not had any obvious effect.
China’s March consumer price inflation stayed subdued, as higher oil prices hit fiscal policy, not consumer prices, in China. Japan’s March producer prices rose on higher import prices, with Finance Minister Katayama offering verbal currency market intervention.