Inflation fell in March despite Trump tariffs: Here's why
China imposes 84% tariffs on American goods
China is reaching out to other nations as the U.S. layers on more tariffs in what appears to be an attempt to form a united front to compel Washington to retreat.
U.S. inflation fell last month, bringing price growth to its lowest figure since September.
Analysts point to a sharp drop in gas prices as the reason for the lower numbers, but they say it’s also a sign that inflation is cooling despite President Donald Trump’s back-and-forth on global tariffs.
March 2025 inflation report
By the numbers:
The latest Labor Department report shows that inflation is mostly cooling after remaining stubbornly elevated through the fall and winter. Consumer prices rose just 2.4% in March from a year earlier, the Labor Department said Thursday, down from 2.8% in February. That is the lowest inflation figure since September.
Excluding the volatile food and energy categories, core prices rose 2.8% compared with a year ago, down from 3.1% in February, the second straight decline. Economists closely watch core prices because they are considered a better guide to where inflation is headed.
Used car prices dropped 0.7% from February to March, the government said. The cost of auto insurance fell 0.8%, welcome relief for car owners, though insurance costs are still up 7.5% compared with a year ago.
One reason prices fell was sharp drops in travel-related costs, including air fares, which slipped 5.3% just from February to March. Hotel room prices dropped 3.5%. Economists said those drops in part reflected much slower international demand as the number of tourists visiting the United States has fallen sharply amid Trump's aggressive trade policy.
Visits to the United States from overseas fell nearly 12% last month, according to government data.
The cost of groceries, however, jumped 0.5% last month, the report showed, as egg prices leapt 5.9% to a new record average price of $6.23 a dozen. Clothing prices rose 0.4%, though they have increased little in the past year.
Worker stocks shelves at grocery store in Wanut, California (Robert Gauthier/Los Angeles Times via Getty Images)
Core prices were stuck at 3.3% for five months before slowing in February. Still, most economists expect that remaining tariffs could lift prices a bit later this year, and inflation remains above the 2% target set by the inflation-fighters at the Federal Reserve.
RELATED: Price tag: How much Americans could pay between tariffs and tax cuts expiring
On a monthly basis, core prices are forecast to rise 0.3% in March. If sustained, price increases at that pace would easily top the Fed's target. Overall prices are expected to tick up just 0.1% in March, however. Economists pay closer attention to the core figures because they provide a better guide to where inflation is headed.
Trump tariffs haven’t raised inflation – yet
The backstory:
Trump had imposed sweeping tariffs on nearly 60 nations last week, which sent financial markets into a tailspin and caused sharp drops in business and consumer sentiment. Yet on Wednesday he paused those duties for 90 days. He kept a steep 125% tariff on all imports from China and 25% duties on steel, aluminum, imported cars, and many goods from China and Mexico.
Even with the pause, many companies are still uncertain where trade policy will go next. Trump has also said that duties on pharmaceutical imports will be imposed.
Dig deeper: The remaining duties are still likely to lift inflation this year, economists say.
RELATED: Tariff update: Here's what the US imports from China
The delay of the sweeping tariffs will likely limit upcoming price increases and has reduced the chances of a recession, economists say. Yet the uncertainty surrounding whether the duties will be imposed will continue to weigh on the economy.
Trump authorizes 90-day pause on tariffs
White House Press Secretary Karoline Leavitt and Treasury Secretary confirm 90-day tariff pause. The two addressing the media outside the White House saying that President is implementing the pause for most of its trading but that does not include China.
Consumers will likely see some prices rise because of the existing duties, including the massive tariffs on China. The United States imports more than $60 billion of iPhones and other mobile phones every year from China, as well as massive amounts of clothes, shoes and toys.
China remains the United States' third-largest trading partner.
Many U.S. companies will likely shift production out of China, a process that had already started during Trump's first term when he slapped duties on some of its exports. Shifting supply chains out of China, however, will likely take time and come with its own costs, which could raise prices for U.S. consumers in the coming months.
Inflation and interest rates
What's next:
Federal Reserve Chair Jerome Powell said that the central bank was likely to keep its key interest rate unchanged at about 4.3% as it waited to see how Trump's policies impacted the economy. Trump called for the Fed to cut rates on Friday.
What they're saying:
"There’s a lot of waiting and seeing going on, including by us," Powell said. "And that just seems like the right thing to do in this period of uncertainty."
The Source: This report includes information from The Associated Press.