Shoppers carry bags in New York City. Photographer: Adam Gray/Bloomberg.
Underlying U.S. inflation cooled broadly in March, indicating some relief for consumers prior to widespread tariffs that risk contributing to price pressures.
The consumer price index (CPI), excluding often-volatile food and energy costs, increased 0.1 percent from February—the least in nine months—according to Bureau of Labor Statistics (BLS) data out this morning. Compared with March of last year, the core CPI rose 2.8 percent, remaining the tamest in nearly four years. The overall CPI declined 0.1 percent from a month earlier, the first decrease in nearly five years, and rose 2.4 percent on a year-over-year basis.
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The CPI was helped by a decline in energy costs, used cars, and airfares, as well as slower price growth in apparel.
| Metric | Actual | Estimate |
|---|---|---|
| CPI month-over-month | -0.1% | +0.1% |
| Core CPI month-over-month | +0.1% | +0.3% |
| CPI year-over-year | +2.4% | +2.5% |
| Core CPI year-over-year | +2.8% | +3.0% |
Though the figures indicate some relief for consumers who have struggled with higher prices for years, the good news risks being short-lived after President Donald Trump put in place expansive tariffs. While Trump announced yesterday a 90-day pause on his “reciprocal” tariffs above 10 percent—less than 24 hours after those levies took effect—imports from most countries remain subject to new 10 percent duties. The United States began collecting tariffs last month on imported steel and aluminum, and levies on China now stand at 125 percent after retaliation from Beijing earlier this week.
Some of the higher import costs will ultimately be passed on to consumers, and companies from Target Co. to Volkswagen AG have warned that higher prices are in store for Americans. However, even with some tariffs already in place in March, some categories with exposure to China posted price declines, including toys, appliances, and tools. The CPI report showed core goods prices dropped 0.1 percent last month, the first decrease since August.
The uncertainty is keeping Federal Reserve officials in wait-and-see mode as they look for more clarity on the impact the levies will have on inflation, and on the economy more broadly.
Services Costs
While all eyes have been on the impact that tariffs will have on goods prices, one of the key drivers of inflation in recent years has been housing costs—which are the largest category within services. Shelter prices rose at a moderate pace, reflecting the steepest drop in hotel stays in more than three years. Owners’ equivalent rent, a subset of shelter, accelerated to a 0.4 percent monthly pace. Within services, motor vehicle and household insurance, as well as car rental costs declined last month.
Excluding housing and energy, services prices declined by the most in nearly five years, according to Bloomberg calculations. Although central bankers have stressed the importance of looking at such a metric when assessing the overall inflation trajectory, they compute it based on a separate index. That measure—known as the personal consumption expenditures (PCE) price index—doesn’t put as much weight on shelter as the CPI does, which helps explain why it’s trending closer to the Fed’s 2 percent target. A government report on producer prices due tomorrow will offer insights on additional categories that feed directly into the March PCE, which is due later this month.
One of the components from CPI that plays a big role in the core PCE price basket is food away from home, which increased 0.4 percent for a second month. Another report published today showed initial applications for unemployment benefits rose to 223,000 last week, remaining close to historical lows.
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