US consumer inflation cooled last month on plunging gas prices, according to government data published Thursday, as consumers and businesses waited nervously for President Donald Trump’s sweeping tariffs to come into effect.
Last week, the U.S. leader introduced tariffs of up to 50% on imports from certain countries, triggering a sharp decline in stock markets and a rise in bond yields. However, on Wednesday, he reversed course, maintaining the tariffs only on China.
Before the market turbulence, the Labor Department reported that the consumer price index (CPI) for March increased by 2.4% compared to the previous year, lower than economists had expected.
Every month, inflation actually dropped by 0.1% from February, aided by a 6.3% decrease in gasoline prices, which contributed to a 2.4% drop in the energy index. Meanwhile, the food index saw a 0.4% rise in March.
This data is likely to be well-received by the Trump administration, which has faced criticism over how its tariff policies might affect consumers. Many economists and Federal Reserve officials have warned that the tariffs could fuel inflation and slow economic growth
However, the report only reflects the period leading up to the imposition of the tariffs, so it doesn’t capture the immediate or long-term impacts of the levies.
Currently, tariffs sit at a 10% baseline for all countries except China, with additional duties on certain goods.
Northlight Asset Management’s Chris Zaccarelli commented, “What a difference 24 hours makes. Not only has the immediate tariff threat been delayed for three months, but the risk of inflation has been avoided for now.”
He also noted that the data is a positive sign for the Federal Reserve, which may have been considering rate cuts if tariffs caused significant economic damage, but would be hesitant to do so while inflation remains a concern.
Excluding the volatile food and energy sectors, inflation rose by 0.1% in March from the previous month, and by 2.8% over the past year. This marked the smallest 12-month increase since March 2021, falling below economists’ expectations.
For the Federal Reserve, this data is promising as it faces inflation that remains above its 2% target, but with the unemployment rate still near historic lows, the central bank is unlikely to cut rates until inflation pressures ease further—unless Trump’s tariffs lead to a sharp economic downturn that could affect employment.
Financial markets now see about an 80% chance that the Fed will keep rates unchanged during its next meeting in May, according to CME Group data.
