US Inflation Soars, Stagflation Concerns Grow: Trade Deficit, Consumer Sentiment & Market Volatility Raise Red Flags

Long-term inflation expectations in the US have jumped to 4.1 per cent, the highest since 1993. This surge is not just a blip—it reflects growing worries about the economy. Even 1-year inflation expectations have doubled from 2.6 per cent to 5.0 per cent in under three months. This sudden rise shows that both consumers and businesses are anxious.

Trade War and Growing Deficits

The ongoing trade war has worsened the situation. In just two months, the US has recorded a USD 300+ billion trade deficit. This is a massive number, indicating that the US is importing far more than it’s exporting. The April 2 "Tariff Day" was expected to end market chaos, but instead, it triggered more volatility. The S&P 500 has dropped sharply, reversing gains in just three days.

Core Inflation Reaccelerates

The core PCE inflation—a key measure the Fed watches—rose to 2.8 per cent in February, above the expected 2.7 per cent. January’s number was also revised higher from 2.6 per cent to 2.7 per cent. These figures show that inflation isn’t slowing down, even though the economy is showing signs of weakness.

Consumer Sentiment Plummets

Consumer sentiment has dropped to its lowest level since the 2022 bear market. This sharp decline mirrors the fear seen during the pandemic in March 2020. People are less optimistic about the stock market, with only 37.4 per cent expecting prices to rise in the next year—a sharp fall from 56.4 per cent just four months ago.

Gold Prices Signal Recession Fears

Gold imports hit a record USD 30.4 billion in January, doubling the amount from the 2020 pandemic. This surge suggests people are worried about the economy. Gold’s price has risen over 50 per cent in 12 months, adding USD 7 trillion to its market value—an unusual trend in a strong economy. Investors are treating gold as a safe haven during uncertain times.

Stagflation: The Emerging Threat

The combination of high inflation, weak economic growth, and rising unemployment points to the return of stagflation. Mentions of "stagflation" on Bloomberg News have surged to around 1,500, the highest since May 2024. This is a major red flag for the economy.

Political Divide on Inflation Expectations

Inflation expectations also vary sharply by political party. Democrats expect 4.6 per cent inflation, while Republicans expect just 1.3 per cent. This gap shows how differently the two groups view the economic outlook.