U.S. Consumer Price Index (March 2025)

Inflationary pressures cool in March, but tariff impacts could start to surface as early as next month

• The Consumer Price Index (CPI) declined 0.1% in March, following a gain of 0.2% month-on-month (m/m) in February. On a twelve-month basis, CPI was up 2.4% (from 2.8% in February). 
  • Energy prices fell 2.4% m/m, thanks to a 6.3% m/m pullback in gasoline prices. Meanwhile, food prices jumped by 0.4% m/m and are up 3.0% on a year-ago basis. 
• Excluding food and energy, core inflation rose by a meager 0.1% m/m (0.06% unrounded) – well below the consensus forecast of 0.3% m/m – and a tick lower than February's gain. The twelve-month change slipped to 2.8% (from 3.1% in February).
• Services prices rose 0.1% m/m, or the softest monthly gain since August 2021. This was due to a pullback in non-housing services (-0.2% m/m), with notable declines in vehicle insurance premiums (-0.8% m/m) and travel related costs (-4.1% m/m). Meanwhile, primary shelter costs rose 0.4% m/m, following a string of softer gains in months prior. 
• Core goods inflation declined 0.1% m/m, after having trended higher over the prior three months. Used vehicle prices (-0.7% m/m), medical (-1.1% m/m) and recreational goods (-0.3% m/m) all declined in March. 

Key Implications

• While this morning's softer inflation reading came as welcome news, the reality is the figures are backward-looking. Sweeping tariff announcements in recent weeks mean that inflationary pressure is likely to heat-up over the coming months. But the magnitude of the increase will depend on both the size and duration of the tariffs. Yesterday, President Trump delayed the implementation of all reciprocal tariffs and instead imposed a flat 10% tariff on all trading partners (except for China, where the tariff rate was raised to 125%). Sectoral tariffs, including those applied to the steel/aluminum and foreign made autos and parts, remain unchanged at 25%. 
• To say uncertainty is elevated at the moment would be an understatement. We see economic growth stalling out through the front half of this year, which will be accompanied by a mild increase in the unemployment rate. But with core measures of inflation likely to push higher as early as Q2, the Fed will quickly find itself stuck between a rock and hard place. Fed futures have nearly fully priced the next cut to come in June, but the recent pivot in tone from some Fed officials suggests policymakers' bias has shifted to holding rates higher for longer. 

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