Welcome to the US Economic Outlook report for March.

My name is Natalie Gallagher

and I am principal economist here at board.

I'm gonna spend some time today walking you

through the latest inflation numbers

that just came out last Wednesday

and how our team of economists is really triangulating the

conversation around the anticipated trajectory of inflation

and how tariffs may or may not impact that trajectory.

So with that, I am going to dive right into the numbers.

In February's US inflation release,

we saw overall inflation cool to 2.8% year over year

and core consumer prices cool to 3.1%.

Now core is the entire consumer price basket

minusing out food

and energy prices, which can be quite volatile

and it cooling to 3.1% was really good to see

because it was actually the lowest level it's been since

April, 2021.

Now, while February's data did show some much needed

cooling, it was well in line with our own expectations.

What we also see is

that the trend has been very uneven over the last several

months and you can see here that the trend is expected

to continue to be uneven in 2025 and even 2 20, 26.

And when we dive into the components

that are actually driving inflation,

this becomes a little bit clearer.

So shelter continues

to be an outsized contributor to inflation.

This is really no surprise.

It has sort of been par for the course, um,

for recent history

and it's really coming down to some structural factors.

But we also saw additional lift in the inflation numbers

from food prices as well as vehicle prices

and core goods and services.

Now, when we talk about the potential impact

that tariffs may

or may not have to really important to look at

what tariffs are placed on what country

and what industries are most likely to be impacted

and how that flows through into the inflation numbers.

And so when we talk about tariffs, they're sort

of inherently inflationary, especially when it's related

to tariffs on key trading partners like Canada,

Mexico, and China.

Now, tariffs are inflationary when the elevated rates

that producers are getting are passed on to consumers.

When we look at the numbers, so for example, crude oil,

the US imports over 70%

of its crude oil from Canada and Mexico.

Refineries are very likely to take the higher input costs,

directly pass those on to consumers.

So what you'll see is numbers increasing at the gas pumps.

That's gonna feed into that headline inflation number

that we talked about on just the last slide.

Now on the other hand, you're also going

to see impacts on food costs.

Another lift to inflation.

More recently because we import over 40%

of our goods are food goods from Canada and Mexico.

And this has really broad

reaching impacts across the food industry.

So from produce imported from Mexico to meat

and dairy products from Canada,

even baked goods from Canada, as well as you know,

relevant factors in China such as soybeans.

Now lastly are sort

of the last category I'll specifically call

out are vehicle prices.

Vehicle prices are also very likely to be impacted

as well since we import a significant number

of both vehicles as well as auto parts from Canada,

Mexico, and China.

And so this has the potential

to increase not only the vehicles

that are imported in the US for for sale

by foreign entities,

but also increase the price

that our domestic producers pay as well.

If those auto parts they utilize are from these other

countries, should we get broad based tariffs

that are permanently imposed?

Then the degree of inflation we are likely to see is going

to be very dependent on several factors such

as the retaliatory actions taken by the other countries,

the federal reserve response and consumer

and business behavioral changes based on expectations.

Now, this is something that we are really keyed into

because consumer

and business expectations actually have the ability

to be a somewhat self-fulfilling prophecy

when it comes to inflation.

So in essence, when we look at the inflation expectations

for consumers, we see that they're really spiking.

And this goes hand in hand with the consumer sentiment data

that we've received this month, last month, really showing

that consumers are feeling very, very

negative about the economic environment amid

all of this uncertainty.

Now, when consumers expect inflation to be elevated,

they can respond in a way

that actually elevates inflation all on its own.

So what this can look like is bringing forward purchases

leading to a spike in demand

and pricing decisions by companies as inventory levels fall.

Also be consumers requesting elevated wage gains

because they want to sort of proactively get ahead

of future costs of living issues.

Now on the other side,

business behavior can also drive inflation

when businesses make certain decisions

among inventory levels, pricing strategies, um,

labor market dynamics as well, whether they freeze hiring

or maybe increase wages to keep their consumers happy

amongst elevated inflation expectations.

And so all of these things can really work together in short

to shape behavior that undermines the ability

to get price stability, the price stability

that the Federal Reserve, um, sort

of desperately wants and needs.

Now given this, we not only have to have the conversation

of tariffs and the overall impact on the economic

trajectory, on what goods are tariffs placed on

what industries those can impact,

but we also have to talk about it in the context

of the psychology of both the consumer

and the business to really get a

Handle on where we expect inflation to go in 2025

and 2026 in this uncertain economic environment.

A question I get a lot from businesses

and individuals is how do we make the best decision given

so much uncertainty

and really there's no correct path forward, right?

Nobody knows what path tariffs

or the economy are going to take in 2025

and 2026 amidst all of this fiscal policy uncertainty.

But what we can do to be best prepared is to implement

the relevant external economic data into our forecasting.

Make sure that we're watching the right things to be able

to make the right decisions at the right time.

Another option is continuous scenario planning, so that

as you really get into these different routes

that the economy can take,

you're not starting at ground zero.

You already have a plan, you already have a trajectory,

and you can really hit the ground running.

Now, if you are interested in learning more about the

relevant economic factors for your business

or want to speak to eco an economist

or get more information about continuous scenario planning

and how board can facilitate that, please feel free

to reach out to board for a demo or visit board.com.

Thank you.