U.S. consumer price index (CPI) rose 2.4% year over year in March (prior: 3.0%), marking the second consecutive monthly decline, according to U.S. Bureau of Labor Statistics on April 11.On a monthly basis, CPI decreased by 0.1% (prior: +0.2%). Core CPI rose 2.8% YoY (prior: 3.1%), falling below 3% for the first time since spring 2021. Monthly core CPI was up 0.1% (prior: 0.2%). All figures came in below market expectations.
Key contributors to the CPI slowdown include:
- Energy prices dropped further by -2.4% MoM (prior: +0.2%), with fuel oil and gasoline prices declining sharply to -6.1% (prior: +0.8%) and -6.3% (prior: -0.9%), respectively, reflecting continued weakness in global crude oil prices.
- Core goods inflation slipped to -0.1% MoM (prior: +0.2%). Used car prices fell -0.7% (prior: +0.9%), while recreation and medical product prices also eased to +0.1% (prior: +0.8%) and -0.7% (prior: +0.3%), respectively—major drags on core goods inflation.
- Core services inflation moderated to +0.2% MoM (prior: +0.3%). The largest component, shelter, slowed to +0.2% (prior: +0.3%). Additionally, auto insurance and airfares declined to -0.3% (prior: +0.3%) and -5.3% (prior: -4.0%), respectively, further pulling down overall services inflation.
Overall, the notable declines in energy, recreation, airfares, and auto insurance prices significantly contributed to the easing of overall inflation. Meanwhile, shelter—by far the largest component of core inflation—continued to decelerate, with its annual growth rate falling further to 4.0%, the lowest level since November 2021 (Rent and owners’ equivalent rent rose 4.0% and 4.4% year over year, respectively.), underscoring the continued unwinding of the primary driver of core inflation.
Although the U.S. implemented 25% tariffs on steel and aluminum and 20% tariffs on China in March, the downward trend in inflation suggests that the impact of tariffs has not yet filtered through to consumer prices. This likely reflects weakening consumer purchasing power. Due to elevated policy uncertainty, consumer confidence in both current and future conditions has deteriorated, reducing demand. As a result, businesses may be absorbing higher costs themselves to preserve price competitiveness.
High-frequency Truflation data show inflation remains subdued at around 1.3% YoY, while further declines in recreation and airfare prices support the view that discretionary spending is weakening.
With the U.S. and China imposing respective tariffs of up to 84% and 125% in April—and the U.S. imposing an additional 10% on all global imports—should companies begin passing on costs to consumers, core goods inflation could reaccelerate and further erode consumption.
Following the CPI release, market participants largely expect the Fed to maintain its wait-and-see stance, with the first rate cut still projected around June. However, given signs of slowing consumption and tightening financial conditions, markets have now priced in a total of 100 bps in rate cuts for the year.
