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Investing.com - Signs of slowing global growth and accelerating U.S. inflation are emerging, suggesting the onset of pressures from President Donald Trump’s aggressive tariff agenda, according to analysts at Barclays (LON:BARC).
In a note to clients on Monday, the analysts led by Ben McLannahan said that indications of these trends -- which, when taken together, are known as "stagflation" -- have recently "crept back into U.S. data."
"Services activity and new orders plunged, and the prices-paid index reached heights not seen since COVID," the analysts wrote, adding that "[m]anufacturers pointed to disruptions, chaos and uncertainty in the aftermath of tariffs."
Still, they flagged that a phone call last week between Trump and Chinese counterpart Xi Jinping has reduced the risk of an escalation in a damaging trade war "for now." Trump said the conversation was mostly focused on trade and led to a "very positive conclusion", although a Chinese government account noted that Xi told Trump to back away from his punishing trade measures and avoid taking steps to support Taiwan.
Crunch discussions between the U.S. and China at an undisclosed location in London are set to be major focus for markets on Monday.
Investors are optimistic that the world’s two largest economies will achieve a rapprochement following a period of increased trade tensions.
Both sides have been at odds over Trump’s threat of elevated tariffs and the supply of rare earth minerals from China, despite a preliminary agreement reached in Geneva last month that included a temporary pause and lowering of punishing tit-for-tat levies. Trump’s so-called "reciprocal" duties on China are now on hold until August 12.
Against this backdrop, investors will have the chance parse through fresh U.S. consumer price data on Wednesday that could provide further insight into the effect of Trump’s tariffs. Economists have flagged that the levies could drive up prices and dent wider economic activity.
The Labor Department’s May consumer price index is tipped to speed up slightly to 2.5% from 2.3%, while the month-on-month gauge is expected to match April’s pace of 0.2%.
Cutting out more volatile items like food and fuel, the index is seen edging up to 2.9% year-over year and 0.3% on a monthly basis.
"All eyes this week are on U.S. inflation data for the first real evidence of tariff-linked price pressures," the Barclays analysts said.
U.S. government yields, which tend to move inversely to prices, are likely to move lower should there be a moderation in the CPI index and continued trade uncertainty, the analysts argued.