US inflation slows in March, offering relief before looming tariff impact

US inflation cooled broadly in March, indicating some relief for consumers prior to widespread tariffs that risk contributing to price pressures. 

The consumer price index, excluding often volatile food and energy costs, increased 0.1% from February, the least in nine months, according to Bureau of Labor Statistics data out Thursday. The overall CPI declined 0.1% from a month earlier, the first decrease in nearly five years.  

The inflation slowdown reflected a decline in energy costs, used vehicles, hotel stays and airfares. The cost of motor vehicle insurance — a main source of inflation in recent years — also retreated. 

The 10-year Treasury yield were little changed after the figures, while the S&P 500 opened lower and the dollar remained weaker. 

The report showed little impact so far from tariffs already in place — in categories like toys and appliances that are more exposed to China — although that may change in coming months as President Donald Trump’s higher levies filter through the economy. 

And price declines for services like hotel stays and airfares may be a warning sign that some consumers are cutting back on discretionary spending. 

“It is the calm before the inflation storm. We’re going to get some higher inflation out of the tariffs,” said David Kelly, chief global strategist at JP Morgan Asset Management, on Bloomberg Television. “What we’re seeing is a lot of softness in the travel industry, which I think is going to get worse over the course of this year.”  

While Trump announced 90-day pause on higher reciprocal tariffs on Wednesday — less than 24 hours after they came into effect — imports from most countries are now subject to 10% duties. The US began collecting tariffs last month on imported steel and aluminum, and levies on China now stand at 125% after retaliation from Beijing earlier this week. 

Some of the higher import costs will ultimately be passed on to the consumers, and companies from Target Co. to Volkswagen AG have warned 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 levies 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 smartphones. The CPI report showed core goods prices dropped 0.1% last month, the first decrease since August.  

“The experience of tariffs on washing machines in 2018 suggests that it takes three months for consumer prices to respond to new tariffs, after which pass through is rapid,” Samuel Tombs, chief US economist at Pantheon Macroeconomics, said in a note. He added that the impact should be felt with the May CPI report.