Inflation eased in March but Trump's tariffs could still bite despite 90-day pause
Paul Davidson, USA TODAY
5 min read
Inflation eased more than expected to a five-month low in March as gasoline and used car prices tumbled and rent increases softened further, offsetting a sharp rise in grocery costs.
The report provides some relief to Americans just as President Donald Trump announced a 90-day pause on some sweeping tariffs that could, along with other steep import taxes, still drive prices sharply higher.
In March, consumer prices increased 2.4% from a year earlier, down from a 2.8% rise the previous month, according to the Labor Department’s consumer price index, a measure of average changes in goods and services costs. That’s the lowest annual increase since September but still leaves inflation above the Federal Reserve’s 2% goal.
On a monthly basis, costs fell 0.1%, compared with February’s 0.2% increase
An underlying inflation measure also drifted down to the lowest level in nearly four years.
Trump’s announcement April 9 sparked a massive stock market rally, but the effects on inflation and the economy in the months ahead are unclear, forecasters said. He said he was still imposing outsize tariffs on Chinese shipments to the United States, along with minimum fees on almost all imports, but was suspending the largest double-digit charges on imports from more than 50 countries.
What does 'core inflation' mean?
Core inflation, which excludes volatile food and energy items and is watched closely by the Federal Reserve because it reflects more sustainable trends, increased 0.1%, down from a 0.2% rise a month earlier.
That pushed down the annual increase from 3% to 2.8%, lowest since March 2021.
In a research note, Goldman Sachs said the 20% in tariffs that Trump placed on China in February and March likely already modestly pushed up prices last month for goods such as apparel and furniture.
On April 9, Trump raised another levy on China to 125% after the two countries traded announcements of escalating retaliatory duties. He also said he was keeping in place a minimum 10% tariff on most countries but suspending fees as high as 50% on more than 50 nations.
In a note to clients, JPMorgan Chase economist Michael Feroli said the harm to the economy from tariffs “is likely to be somewhat less than before, and thus the prospect of a recession is a closer call.” The research firm previously had raised its recession odds to 60%.
Even with Trump’s pause on most of the highest import charges, the increase in the duty on imports from China theoretically would still push up the average U.S. tariff from 23% to 25%, Feroli said. But as a result, he said, China’s share of imports likely would “shrink dramatically,” lessening that country’s contribution to the average tariff rate and inflation.
The bottom line, he said, is uncertainty about economic policy and inflation would likely prompt the Federal Reserve to wait until September before cutting interest rates again. Feroli had expected the Fed to act in June.
"The Federal Reserve's job is getting easier, but they're still stuck as the on-and-off tariff policy is making it nearly impossible for them to gauge inflation expectations," which themselves influence inflation, said Skyler Weinand, chief investment officer of Regan Capital.
The central bank lowered rates three times in late 2024 by a total percentage point as inflation slowed significantly, but officials have been on hold since then amid elevated price increases and the uncertainty generated by Trump’s tariffs.
Before Trump’s reprieve April 9, Barclays expected tariffs to propel overall inflation to 3.5% by year’s end and the core measure to 4.1%.
Absent any import fees, Goldman said it expected inflation to fall further this year as pandemic-related spikes in car costs, rent and wages continued to soften.
Are gas prices expected to drop?
Gasoline prices fell 0.5% last month and are down nearly 10% over the past year. Regular unleaded averaged $3.24 a gallon Tuesday, in line with the price a month ago and down from $3.61 a year ago, according to AAA.
Oil prices have skidded sharply lately on fears that the trade war will undermine the global economy, putting downward pressure on gas prices. Also, OPEC countries, including Saudi Arabia and Russia, have agreed to increase production starting in April.
Are rent increases slowing?
Rent increased a relatively modest 0.3% for the fourth month, nudging the annual increase from 4.1% to 4%, the smallest since January 2022. Lower rents for new leases are finally making their way into rates for existing tenants.
That’s noteworthy because housing costs have been the biggest inflation driver, making up 35% of overall price increases in March.
Some other services costs also declined sharply. Airline fares slid 5.3% after a 4% decrease the previous month, and hotel rates fell 3.5%. Capital Economics cited a drop in consumer travel demand and fewer tourist visits, especially from Canada, where sentiment has hardened toward the United States because of the trade war. Auto insurance – a big contributor to inflation because of a pandemic-related rise in car prices − unexpectedly decreased 0.8%.
Other services prices rose: Car repairs were up 0.8% and medical care increased 0.5%.
Will the price of food go down in 2025?
Grocery costs leaped 0.5% after flatlining the month before, in part because of weather-related disruptions to farmers. Egg costs jumped another 5.9% after surging this year amid a long-standing bird flu outbreak.
Other items also got more expensive. Bacon rose 2.4%; uncooked ground beef, 3.1%; chicken, 0.5%; and breakfast cereal, 1.6%.
Partly offsetting the increases was a 1% decline in bread prices and a 0.4% dip in fresh fish and seafood.
Goods prices were mixed, with a 0.7% drop in used car costs partly offset by a 0.4% bump in apparel and 0.6% rise in furniture. Economist Samuel Tombs, of Capital Economics, said consumers "have remained largely unaffected" so far by tariffs, adding that Trump's fees in his first term showed it takes three months for the charges to affect consumer costs.
But that's coming, he suggested.
In the battle against inflation, "tariffs will snatch defeat from the jaws of victory," he said.
(This story has been updated with new information.)
