U.S. inflation declined last month as the cost of gas fell, a sign that price growth was cooling even as President Donald Trump ramped up his tariff threats.
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.
The report shows that inflation is mostly cooling after remaining stubbornly elevated through the fall and winter. 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.
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.
The remaining duties are still likely to lift inflation this year, economists say, even with the 90-day pause on some tariffs.
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.
THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.
WASHINGTON (AP) — Inflation likely declined last month as the cost of energy, used cars and hotel rooms may have fallen, though President Donald Trump's remaining tariffs could lift prices soon.
Consumer prices probably rose 2.6% in March from a year ago, the Labor Department is expected to report Thursday, according to economists' projections compiled by FactSet. That would be down from February's yearly gain of 2.8%. Excluding the volatile food and energy categories, prices are expected to have risen 3%, down from 3.1% in February.
The projected figures, if accurate, would suggest inflation is starting to cool again after remaining elevated for most of the fall and winter. Core inflation was stuck at 3.3% for five months before declining in February.
Still, inflation remains above the 2% target set by the inflation-fighters at the Federal Reserve. And 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.
Most economists had forecast higher inflation this year as a result of the sweeping tariffs on 60 nations that President Donald Trump announced last week. Yet on Wednesday, Trump paused those duties for 90 days. A universal tariff of 10% remains in place, as well as 25% duties on steel, aluminum, cars and many items from Canada and Mexico.
And import taxes on China have been ramped up to 125%, after China retaliated against Trump's earlier decisions to place large duties on imports from China.
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.
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.
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. Still, China remains the Unite States' third-largest trading partner.
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.
Last week, 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.
“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.”
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