The good news: Inflation is slowing. The bad news: Probably not for much longer.
After years of sticky inflation, prices fell the most since 2020 last month even as President Trump poured gasoline on the trade war fire.
Here’s how the consumer price index (CPI) looked for March:
- Headline CPI fell 0.1%, its lowest reading since July 2022.
- Core CPI, which excludes volatile food and energy costs, only rose 0.1% last month.
- Headline CPI rose 2.4% annually, below the 2.8% reading in February, while core CPI rose 2.8%, its lowest level in four years.
- But egg prices saw no relief: In fact, prices rose to a record $6.23 per dozen. Word on the street is that the Easter Bunny is hiring security.
While the inflation slowdown should be great news, everyone is focused on the other shoe that’s about to drop: tariffs.
“While the March CPI report brought some encouraging news, the relief is likely to be short-lived as upcoming inflation reports will likely reflect some pass-through from recent steep tariff increases,” wrote EY Senior Economist Lydia Boussour in a note today. “Our modelling shows that if the universal 10% tariff on all trading partners and 125% tariff on China are maintained, US consumer price inflation could be 0.8 percentage points higher in 2025, with the inflationary impulse concentrated in the second quarter of the year.”
The plot thickens for the Fed
Jerome Powell probably feels like he’s trying to find Pepe Silvia, connecting all the macro data points and rapidly shifting economic policy from the White House to the Fed’s plans for rate cuts.
Making sense of market moves
Stay up to date on the latest market news with daily analysis of the investing landscape, served up Brew-style.
The quagmire: If inflation is finally receding at the same time the broader economy is slowing, that suggests it could be time for the Fed to cut rates. But the central bankers don’t want to ease monetary policy too quickly just in case Trump’s tariff policies give prices a super-boost, something Fed officials foresee happening.
“The weak inflation report should provide justification to consider resuming rate cuts after the considerable pause, though one month does not yet constitute a new trend,” explained Chief of Investment Strategy and Research at Glenmede Jason Pride. “The Fed is likely to take a wait-and-see approach over the near-term, but base case expectations for 3-4 rate cuts this year appear reasonable.”
As of now, traders are anticipating the central bank will keep rates the same at the Fed’s May meeting.—LB