| I’m Chris Anstey, an economics editor in Boston. Today we’re looking at the potential return of a “transitory” interpretation of inflation. Send us feedback and tips to ecodaily@bloomberg.net or get in touch on X via @economics. And if you aren’t yet signed up to receive this newsletter, you can do so here. - The Trump administration took aim at China with a series of moves involving investment, trade and other issues that raises the risk ties may soon worsen.
- Optimism among German companies grew, feeding hopes of a turnaround for Europe’s largest economy that may also benefit from a change in government following Sunday’s election.
- For UK consumers still reeling from Labour’s first budget, the watchword is caution.
When inflation morphed from a notable acceleration in the spring of 2021 into the biggest cost-of-living surge in four decades, the term “transitory” practically became a dirty word. Federal Reserve Bank of Atlanta President Raphael Bostic even banned the use of it, depositing a dollar bill in a glass jar each time it was used. Now, the term risks a comeback. Treasury Secretary Scott Bessent last week dismissed concerns about the potential for President Donald Trump’s tariff hikes to feed through to a new burst of inflation. “I would say that tariffs, if they have any price adjustments, are the most transitory thing there are,” Bessent said in his Thursday interview with Bloomberg Television. He also said that that they shouldn’t put off Fed policymakers from resuming the interest-rate cuts that have been on pause since December. “I don't think that should hold them back very long.” The extent of new tariffs may get clearer when a series of deadlines hits in March and April – the end of a pause in 25% hikes threatened against Canada and Mexico, along with a target date for 25% steel and alumni levies and a raft of other measures and reviews that are due. A 10% surtax on Chinese imports is already in place. With the economy still in good shape, companies may be encouraged to use the backdrop of tariff hikes as cause for fresh rounds of price rises. The big danger is those then spur consumers’ inflation expectations, as this newsletter noted earlier. And if employers that benefited from the immigration jump in recent years feel the effects of the crackdown underway, that may also raise wage pressures, in a further inflationary impulse. Bessent dismissed that concern also. “We had the worst inflation in 40 years when we added 10 or 20 million people — so I'm not sure why people are saying that it's inflationary to tell them to go home,” he said. Jason Furman, the Obama administration chief economist who’s stoked debate this month with a deeply negative assessment of Biden administration economic policies, had a new message for Bessent Friday. “I would warn him against using the word transitory for inflation — you don’t know what gets built into expectations,” Furman said on Bloomberg TV. “I don’t think the Fed could afford to have the inflation rate go to 3% for a year or two and say ‘but don’t worry, it’s just because of tariffs — we’re going to keep cutting rates even though inflation is 3% now.” The Best of Bloomberg Economics | The Fed’s preferred inflation metric is expected to cool to the slowest pace since June, but glacial progress on taming price pressures overall will keep policymakers cautious about lowering interest rates further. The core personal consumption expenditures price index — which excludes often-volatile food and energy costs — probably rose 2.6% in the year through January in Commerce Department data due on Friday. Overall PCE inflation likely eased on an annual basis as well, according to the median estimate in a Bloomberg survey of economists. Elsewhere, inflation in Australia and the biggest euro-zone economies, and a rate cut in South Korea may be among the highlights. See here for the rest of the week’s economic events. The clock is ticking down on the suspended 25% tariff hit to Mexico that President Donald Trump announced last month. Unless a more permanent deal is done, it’s set to kick in in early March. But Wells Fargo economists, summing up a recent visit to the US neighbor, said the widespread assumption is tariff hikes aren’t coming. Not in March, or thereafter. “No public nor private sector entity we engaged with believe direct tariffs will be imposed on Mexico,” international economist Brendan McKenna wrote in a note last week. “Also, the consensus during our conversations was that direct tariffs would be avoided over the entirety of the Trump administration.” Wells Fargo, however, sees Trump following through on tariffs on most US trading partners, something that — along with retaliatory escalation — will weigh on Mexico’s growth. With American trade policy in flux, Mexico will suffer from reduced attractiveness “as a nearshoring option,” McKenna wrote. Add in diminished remittances and other headwinds, and Mexico’s potential growth is left at just about 1% to 1.5%, he said. | 
