Inflation was more moderate than economists expected last month, according to data released Thursday morning, though President Donald Trump’s tariff threats could drive consumer prices back up in a major fashion.
Consumer prices declined 0.1% month-over-month and rose 2.4% year-over-year in March, according to the Bureau of Labor Statistics’ consumer price index, compared to consensus economist forecasts of a 2.6% annual rise in prices and a 0.1% month-over-month increase, according to FactSet data.
That is the lowest annual CPI inflation reading since September’s 2.4%.
Core CPI inflation, which excludes the more volatile food and energy categories, was 2.8% annually in March and 0.1% month-over-month, compared to estimates of 3% and 0.3%, respectively.
That’s the lowest core CPI inflation, considered by many policymakers to be a more accurate measure of the trajectory of prices, since March 2021.
Gasoline and airline fares declined 6% and 5%, respectively, driving much of the lower inflation, reflective of lower consumer demand for travel amid recession fears.
Fresh off of a historic day as Trump stood down on his most aggressive tariff plans, at least temporarily, stocks and bonds didn’t budge after the milder-than-expected inflation reading. Futures for the S&P 500 baseline stock index maintained a roughly 2% loss, while yields for the benchmark 10-year Treasury were flat at just above 4.3%.
How Trump’s oft-changing tariffs will impact inflation. Even after Trump’s 90-day tariff pause on the more than 10% tariffs on many non-China trade partners, the effective tariff rate will still increase by 15 percentage points, Goldman Sachs economists estimated Wednesday. That will still translate into substantially higher prices for foreign goods. On Tuesday, Goldman forecasted the core CPI rate would jump to 3.7% by the end of 2025, which would be a level not seen since March 2024.
“The shock to consumer goods prices from tariff hikes is not reflected yet,” Brian Coulton, Fitch Ratings’ chief economist, wrote in emailed comments, explaining companies “had been sucking in huge amounts of imports in January and February in advance of tariff hikes.”
Inflation most directly affects the economy as higher prices weigh on consumer confidence and can weaken growth, but it also pays a pivotal role in monetary policy. At its most recent meeting, Federal Reserve officials “judged that inflation was likely to be boosted this year by the effects of higher tariffs,” according to minutes released Wednesday. That could sway the Fed away from lowering interest rates, which would lower borrowing costs and help stimulate the economy, as it operates on a dual mandate to simultaneously keep prices stable and the economy afloat.
