Evelyn Reynolds

German inflation came in at 2.3% in March, preliminary data from the country’s statistics office Destatis showed Monday.
Economists polled by Reuters had forecast a 2.4% annual reading.
The data comes at a critical time for the German economy as U.S. President Donald Trump’s tariffs loom and fiscal and economic policy shifts at home could be imminent.

Customers shop for fresh fruits and vegetables in a supermarket in Munich, Germany, on March 8, 2025.
Michael Nguyen | Nurphoto | Getty Images

German inflation came in at a lower-than-expected 2.3% in March, preliminary data from the country’s statistics office Destatis showed Monday.
It compares to February’s 2.6% print, which was revised lower from a preliminary reading, and a poll of Reuters economists who had been expecting inflation to come in at 2.4% The print is harmonized across the euro area for comparability. 

On a monthly basis, harmonized inflation rose 0.4%. Core inflation, which excludes food and energy costs, came in at 2.5%, below February’s 2.7% reading.
Meanwhile services inflation, which had long been sticky, also eased to 3.4% in March, from 3.8% in the previous month.

A critical time for the economy

The data comes at a critical time for the German economy as U.S. President Donald Trump’s tariffs loom and fiscal and economic policy shifts at home could be imminent.
Trade is a key pillar for the German economy, making it more vulnerable to the uncertainty and quickly changing developments currently dominating global trade policy. A slew of levies from the U.S. are set to come into force this week, including 25% tariffs on imported cars — a sector that is key to Germany’s economy. The country’s political leaders and car industry heavyweights have slammed Trump’s plans.
How the trade conflict will impact inflation is however still unclear, Carsten Brzeski, global head of macro at ING noted Monday.

“The looming escalation of trade tensions and possible European retaliation to US tariffs could add to inflationary pressures in the short run,” he said.
“In the longer run, however, any trade war could also turn into a disinflationary force for Germany and the eurozone if growth were to weaken and companies potentially have to sell their increased inventories,” Brezeski said, noting that goods originally produced for the U.S. market could ultimately be sold in Europe at a reduced price point.
Meanwhile Germany’s political parties are working to establish a new coalition government following the results of the February 2025 federal election. Negotiations are underway between the Christian Democratic Union, alongside its sister party the Christian Social Union, and the Social Democratic Union.
While various points of contention appear to remain between the parties, their talks have already yielded some results. Earlier this month, Germany’s lawmakers voted in favor of a major fiscal package, which included amendments to long-standing debt rules to allow for higher defense spending and a 500-billion-euro ($541 billion) infrastructure fund.

ECB rate decision ahead

Monday’s inflation figures out of Germany, paired with recent data from other major euro zone countries such as Spain and France, suggests that euro zone headline inflation will likely have eased in March, Franziska Palmas, senior Europe economist at Capital Economics, suggested in a note.
French harmonized inflation was unchanged at 0.9% on an annual basis in March, lower than expected. In Spain, the reading fell sharply to 2.2%, down from 2.9% in the previous month and also lower than expected.
Euro zone inflation figures are due on Tuesday. Economists polled by Reuters were last forecasting the reading to come in at 2.3%.
“Germany’s figures, together with those from France, Italy and Spain, suggest that euro-zone headline inflation will probably come in at 2.2% in March, a bit below expectations,” Palmas said Monday. Core inflation is expected to be unchanged, or slightly lower than in February, she added.

“Services inflation probably also fell, which will please ECB officials,” she said, adding that “the chunky fall in Germany should more than offset the 0.1%-pt rises in France and Italy.”
“This increases the likelihood that the ECB cuts rates again in April, in line with our forecast, rather than pausing,” Palmas said.
Markets were last pricing in an around 91% chance of a 25-basis-point interest rate cut from the ECB on April 17, LSEG data showed. More

Economic growth in the first quarter was just 0.3%, according to CNBC’s Rapid Update which tallied the forecasts of 14 economists.
The survey also shows Core PCE inflation will remain stuck at around 2.9% for most of the year.
The dour new forecasts come as the decline in consumer and business sentiment from the emerging trade war is showing up in real economic activity.

U.S. President Donald Trump speaks to members of the media aboard Air Force One before landing in West Palm Beach, Florida, U.S., March 28, 2025. 
Kevin Lamarque | Reuters

Policy uncertainty and new sweeping tariffs from the Trump administration are combining to create a stagflationary outlook for the U.S. economy in the latest CNBC Rapid Update.
The Rapid Update, averaging forecasts from 14 economists for GDP and inflation, sees first quarter growth registering an anemic 0.3% compared with the 2.3% reported in the fourth quarter of 2024. It would be the weakest growth since 2022 as the economy emerged from the pandemic.

Core PCE inflation, meanwhile, the Fed’s preferred inflation indicator, will remain stuck at around 2.9% for most of the year before resuming its decline in the fourth quarter.
Behind the dour GDP forecasts is new evidence that the decline in consumer and business sentiment is showing up in real economic activity. The Commerce Department on Friday reported that real, or inflation-adjusted consumer spending in February rose just 0.1%, after a decline of -0.6% in January. Action Economics dropped its outlook for spending growth to just 0.2% in this quarter from 4% in the fourth quarter.

Arrows pointing outwards

“Signs of slowing in hard activity data are becoming more convincing, following an earlier worsening in sentiment,” wrote Barclays over the weekend.
Another factor: a surge of imports (which subtract from GDP) that appear to have poured into the U.S. ahead of tariffs.
The good news is the import effect should abate and only two of the 12 economists surveyed see negative growth in Q1. None forecast consecutive quarters of economic contraction. Oxford Economics, which has the lowest Q1 estimate at -1.6%, expects a continued drag from imports but sees second quarter GDP rebounding to 1.9%, because those imports will eventually end up boosting growth when they are counted in inventory or sales measures.

Recession risks rising

On average, most economists forecast a gradual rebound, with second quarter GDP averaging 1.4%, third quarter at 1.6% and the final quarter of the year rising to 2%.
The danger is an economy with anemic growth of just 0.3% could easily slip into negative territory. And, with new tariffs set to come this week, not everyone is so sure about a rebound.
“While our baseline doesn’t show a decline in real GDP, given the mounting global trade war and DOGE cuts to jobs and funding, there is a good chance GDP will decline in the first and even the second quarters of this year,” said Mark Zandi of Moody’s Analytics. “And a recession will be likely if the president doesn’t begin backtracking on the tariffs by the third quarter.”
Moody’s looks for anemic Q1 growth of just 0.4% that rebounds to 1.6% by year end, which is still modestly below trend.

Arrows pointing outwards

Stubborn inflation will complicate the Fed’s ability to respond to flagging growth. Core PCE is expected at 2.8% this quarter, rising to 3% next quarter and staying roughly at that level until in drops to 2.6% a year from now.
While the market looks to be banking on rate cuts, the Fed could find them difficult to justify until inflation begins falling more convincingly at the end of the year. More

Goldman Sachs expects aggressive duties from the White House to raise inflation and unemployment and drag economic growth to a near-standstill.
In a note Sunday, the firm said “we continue to believe the risk from April 2 tariffs is greater than many market participants have previously assumed.”
The firm raised its forecast for inflation this year to 3.5%, cut its GDP outlook to just 1% and raised its unemployment view to 4.5%.

U.S. President Donald Trump announces that his administration has reached a deal with elite law firm Skadden, Arps, Slate, Meagher & Flom during a swearing-in ceremony in the Oval Office at the White House on March 28, 2025 in Washington, DC. 
Andrew Harnik | Getty Images

With decision day looming this week for President Donald Trump’s latest round of tariffs, Goldman Sachs expects aggressive duties from the White House to raise inflation and unemployment and drag economic growth to a near-standstill.
The investment bank now expects that tariff rates will jump 15 percentage points, its previous “risk-case” scenario that now appears more likely when Trump announces reciprocal tariffs on Wednesday. However, Goldman did note that product and country exclusions eventually will pull that increase down to 9 percentage points.

When the new trade moves are enacted, the Goldman economic team led by head of global investment research Jan Hatzius sees a broad, negative impact on the economy.
In a note published on Sunday, the firm said “we continue to believe the risk from April 2 tariffs is greater than many market participants have previously assumed.”
Inflation above goal
On inflation, the firm sees its preferred core measure, excluding food and energy prices, hitting 3.5% in 2025, a 0.5 percentage point increase from the prior forecast and well above the Federal Reserve’s 2% goal.
That in turn will come with weak economic growth: Just a 0.2% annualized growth rate in the first quarter and 1% for the full year when measured from the fourth quarter of 2024 to Q4 of 2025, down 0.5 percentage point from the prior forecast. In addition, the Wall Street firm now sees unemployment reaching 4.5%, a 0.3 percentage point raise from the previous forecast.
Taken together, Goldman now expects a 35% chance of recession in the next 12 months, up from 20% in the prior outlook.

The forecast paints a growing chance of a stagflation economy, with low growth and high inflation. The last time the U.S. saw stagflation was in the late 1970s and early ’80s. Back then, the Paul Volcker-led Fed dramatically raised interest rates, sending the economy into recession as the central bank chose fighting inflation over supporting economic growth.
Three rate cuts
Goldman’s economists do not see that being the case this time. In fact, the firm now expects the Fed to cut its benchmark rate three times this year, assuming quarter percentage point increments, up from a previous projection of two rate cuts.
“We have pulled the lone 2026 cut in our Fed forecast forward into 2025 and now expect three consecutive cuts this year in July, September, and November, which would leave our terminal rate forecast unchanged at 3.5%-3.75%,” the Goldman economists said, referring to the fed funds rate, down from 4.25% to 4.50% today.
Though the extent of the latest tariffs is still not known, the Wall Street Journal reported Sunday that Trump is pushing his team toward more aggressive levies that could mean an across-the-board hit of 20% to U.S. trading partners.
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The final version of the University of Michigan’s closely watched Survey of Consumers showed a reading of 57.0 for the month, down 11.9% from February and 28.2% from a year ago.
Inflation fears drove much of the downturn.
Respondents expect inflation a year from now to run at a 5% rate, up 0.1 percentage point from the mid-month reading, and a 0.7 percentage point acceleration from February.

A shopper pays with a credit card at the farmer’s market in San Francisco on March 27, 2025.
Bloomberg | Bloomberg | Getty Images

The deterioration in consumer sentiment was even worse than anticipated in March as worries over inflation intensified, according to a University of Michigan survey released Friday.
The final version of the university’s closely watched Survey of Consumers showed a reading of 57.0 for the month, down 11.9% from February and 28.2% from a year ago. Economists surveyed by Dow Jones had been expecting 57.9, which was the mid-month level.

It was the third consecutive decrease and stretched across party lines and income groups, survey director Joanne Hsu said.
“Consumers continue to worry about the potential for pain amid ongoing economic policy developments,” she said.
In addition to worries about the current state of affairs, the survey’s index of consumer expectations tumbled to 52.6, down 17.8% from a month ago and 32% for the same period in 2024.
Inflation fears drove much of the downturn. Respondents expect inflation a year from now to run at a 5% rate, up 0.1 percentage point from the mid-month reading, and a 0.7 percentage point acceleration from February. At the five-year horizon, the outlook now is for 4.1%, the first time the survey has had a reading above 4% since February 1993.
Economists worry President Donald Trump’s tariff plans will spur more inflation, possibly curtailing the Federal Reserve from further interest rate cuts.

The report came the same day the Commerce Department said the core inflation rate increased to 2.8% in February, after a 0.4% monthly gain that was the biggest move since January 2024.
The latest results also reflect worries over the labor market, with the level of consumers expecting the unemployment rate to rise at the highest level since 2009.
Stocks took a hit after the university’s survey was released, with the Dow Jones Industrial Average trading more than 500 points lower.
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