US inflation unexpectedly cools ahead of tariffs impact

NEW YORK – Underlying US inflation cooled broadly in March, indicating some relief for consumers before widespread tariffs that risk contributing to price pressures.

The consumer price index (CPI), excluding often volatile food and energy costs, increased 0.1 per cent from February, the least in nine months, according to Bureau of Labour Statistics data out on April 10. Compared with March 2024, the core CPI rose 2 per cent, remaining the tamest in nearly four years.

The overall CPI declined 0.1 per cent from a month earlier, the first decrease in nearly five years, and rose 2.4 per cent on a year-over-year basis.

The CPI was helped by a decline in energy costs, used cars and airfares, as well as slower price growth in apparel.

Treasury yields slid and S&P 500 index futures remained lower, and the dollar extended its decline on the day.

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 more expansive tariffs.

While Mr Trump

announced a 90-day pause on higher reciprocal tariffs on April 9

– less than 24 hours after they came into effect – imports from most countries are now subject to 10 per cent duties.

The US began collecting tariffs in March on imported steel and aluminium, and tariffs on China now stand at 125 per cent after retaliation from Beijing earlier this week.

Some of the higher import costs will ultimately be passed on to consumers, and companies from Target to Volkswagen have warned that higher prices are in store for Americans.

The uncertainty is keeping Federal Reserve officials in wait-and-see mode as they look for more clarity on the impact the tariffs will have on inflation – and the economy more broadly.

Even with some tariffs already in place in March, some of the categories more exposed to China posted declines, including toys, appliances and tools.

The CPI report showed that core goods prices dropped 0.1 per cent in March, the first decrease since August 2024. 

While all eyes have been on the impact 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 per cent monthly pace.

Within services, motor vehicle and household insurance, as well as car rental costs, declined in March. 

Excluding housing and energy, services prices declined by the most in nearly five years, according to Bloomberg calculations. While 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 price index – does not put as much weight on shelter as the CPI, which helps explain why it is trending closer to the Fed’s 2 per cent target. A government report on producer prices due on April 11 will offer insights on additional categories that feed directly into the March Personal Consumption Expenditures (PCE) Price Index, which is due later in April.

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 per cent for a second month.

Another report published on April 10 showed initial applications for unemployment benefits rose to 223,000 last week, remaining close to historical lows. BLOOMBERG