U.S. inflation eased last month as the prices of gas, airline fares, and hotel rooms dropped, indicating that price growth was slowing, despite President Donald Trump’s escalating tariff threats. Consumer prices rose 2.4% in March compared to the previous year, down from 2.8% in February, marking the lowest inflation rate since September.
When excluding the volatile food and energy sectors, core prices increased by 2.8% year-over-year, a decrease from 3.1% in February, representing the smallest core price rise in almost four years. Core prices are closely monitored by economists as they provide a clearer indication of inflation trends.
However, experts cautioned that the data is largely backward-looking and may soon be overshadowed by the impact of tariffs imposed by Trump, particularly on China. Despite a brief 90-day pause in some tariffs announced recently, economists expect inflation to rise in the coming months, potentially remaining high through the end of the year.
Paul Donovan, Chief Economist for UBS Wealth Management, pointed out that the recent tariff increases, even if temporary, will ultimately raise taxes on U.S. consumers, forcing them to find the money to cover these costs. On a monthly basis, overall prices fell by 0.1% in March, marking the first decline in nearly five years, while core prices saw a slight increase of 0.1%.
Used car prices dropped 0.7% from February to March, and auto insurance costs fell by 0.8%, offering some relief to car owners, although insurance premiums are still 7.5% higher compared to the previous year. Travel-related costs, including a 5.3% drop in airfares and a 3.5% decline in hotel room prices, also contributed to the overall decrease in prices. These declines were partly attributed to a slowdown in international demand, with overseas visits to the U.S. dropping nearly 12% last month.
Meanwhile, grocery prices rose by 0.5%, driven by a significant 5.9% increase in egg prices, reaching a new record of $6.23 per dozen. Clothing prices went up by 0.4%, though their overall increase over the past year has been minimal.
Despite Trump’s recent 90-day tariff pause, financial markets have been volatile, and consumer sentiment has dipped due to ongoing trade tensions. Trump’s tariffs, particularly those on China, remain in place and are expected to continue pushing inflation upward this year. There is also uncertainty about future trade policies, including potential tariffs on pharmaceuticals.
The tariffs on China, particularly on mobile phones, clothing, shoes, and toys, will likely lead to higher consumer prices, as the U.S. imports over $60 billion worth of such goods annually from China. Although U.S. companies may shift production out of China, this process is expected to take time and could introduce additional costs.
Federal Reserve Chair Jerome Powell recently indicated that the central bank plans to maintain its key interest rate at around 4.3% as it monitors the economic impact of Trump’s policies. Trump has called for the Fed to cut rates, but for now, Powell emphasized the importance of waiting for more clarity in this uncertain economic environment.