Inflation cooled more than expected in March despite Trump's warnings of more tariffs to come

• Inflation in March slowed more than expected again to 2.4% year-over-year, from 2.8% in February.
• The report reflects price data from before President Donald Trump's latest round of tariffs.
• Core CPI had the smallest year-over-year increase since March 2021.

Inflation cooled more than expected in March despite President Donald Trump's warnings that he would impose more tariffs.

The consumer price index increased 2.4% from a year prior compared to the forecast of 2.5%. It's the second straight month of cooling and reflects prices before Trump's latest trade war escalation.

CPI fell 0.1% over the month after rising 0.2% in February and other monthly increases before it. It was expected to increase 0.1%.

Core CPI, which excludes volatile food and energy prices, slowed more than expected. It increased 2.8% compared to a forecast of 3% and a cooler rate than the previous 3.1%. The Bureau of Labor Statistics report said that's the smallest year-over-year increase since March 2021.

Core CPI rose 0.1% over the month, a cooler increase than the previous 0.2% and a smaller rise than the 0.3% forecast.

Economists don't think the slowdown will last, especially after Trump's newest round of tariffs in April.

"That was nice, but don't get used to it," Greg McBride, Bankrate's chief financial analyst, said, adding "consumers, businesses, and even the Federal Reserve, are bracing for higher prices in the months ahead."

Gas prices provided some relief, falling 6.3% from February to March. That contributed to a 2.4% drop in the energy index over the month.

The index for gas plunged 9.8% in March from a year prior, compared to February's 3.1% year-over-year drop.

Home prices and rents are also showing signs of moderating. The index for shelter had another month of cooling, rising by 4% over the year in March, its smallest year-over-year increase since November 2021.

The new data, along with other coming inflation and jobs reports, will help the Federal Reserve decide in May what to do with interest rates. CME FedWatch, which indicates the chances of changes based on market moves from interest rate traders, showed an over 80% chance the Federal Reserve would hold rates steady once again in May after the report, similar to before the release.

Federal Reserve chair Jerome Powell said at the March press conference after Federal Open Market Committee members decided to hold interest rates steady that "a good part" of the unexpected surge in goods inflation in the first two months of 2025 was because of tariffs, partially from consumers and businesses opting to stock up before new duties kick in.

A new analysis from the Bank of America Institute showed some consumers were preparing for tariffs.

"In Bank of America data we find some evidence that consumers were buying durables ahead of the introduction of tariffs," the report said. "The evidence is strongest in autos sales."

A growing chorus of experts say Trump's tariffs will cause an economic downturn and possibly even a recession. The Trump administration has instead argued that tariffs are necessary to balance trade deficits and will benefit the US in the long run after some short-term pain.

Meanwhile, the University of Michigan's sentiment measures tumbled again in March. Markets have swung wildly over the last week as Trump introduced and then partially walked back tariffs.

It's uncertain how companies will decide to pass costs onto consumers since the latest 10% tariffs on goods from most countries and 125% on imports from China recently went into effect.

"We are likely to see inflationary outcomes, not only on imported goods but on domestic prices, as input costs rise and demand increases on domestic products," Jamie Dimon, chief executive of JPMorgan Chase, said in his letter to shareholders on Monday, adding that there's still uncertainty around what the tariffs mean for a recession but economic growth will slow.

This is a developing story. Please check back for updates.