But the March slide could be reversed in April, even with Trump's tariff pause
US inflation fell on all items for the first time in three years last month, although some economists believe prices could be on the way up in the months ahead as tariffs work their way into the economy.
The US Bureau of Labor Statistics announced Thursday that the consumer price index (CPI) for all urban consumers decreased 0.1% from February to March to 2.4%, while core inflation increased by just 0.1% between those months.
According to Bloomberg, the 2.8% increase in core inflation over the last 12 months is the lowest rate since inflation began to surge in the spring of 2021.
Sam Williamson, First American senior economist, welcomed the slowdown in year-over-year price growth.
“Amid the tariff uncertainty, today’s CPI report provided some positive signs for inflation, as the headline inflation decreased month-over-month for the first time in nearly three years,” he said. “In fact, both the headline and core inflation indices posted the slowest annual growth rates since inflation began surging in early 2021.”
However, despite the pause in some of the tariffs implemented by the Trump administration, continued levies on China, automotive parts, and steel and aluminum have economists concerned that inflation will begin to surge again.
Price decreases in the energy sector led the decline, as they fell 2.4% in March. Over the last 12 months, the CPI on energy commodities has decreased by 9.5%.
Other categories saw month-over-month increases, including food by 0.4%, new vehicles by 0.1%, apparel by 0.4%, shelter by 0.2%, and medical care services by 0.5%
“Food prices and new vehicle prices ticked up,” Williamson said. “These movements in import-reliant categories may reflect anticipatory effects of ongoing tariff uncertainty in recent months.”
The 12-month increase in shelter prices provided some good news for mortgage brokers. According to Bloomberg, the 4% increase in shelter prices over the last 12 months is the smallest gain in that index since 2021.
Tariffs could make inflation drops short-lived
The Trump administration announced a reduction in newly announced tariffs on Wednesday, with most countries now subject to a 10% import tax.
However, the president doubled down on tariffs on China, increasing them to 125%. China has announced retaliatory tariffs of 84% on US goods. Many in the mortgage industry believe these tariffs could hurt new homebuilders in the United States.
Russ Taylor of Russ Taylor Global says new US duties on Canadian lumber—now 34.45%—were expected. He warns rising costs, along with tariffs on steel and windows, may raise home prices and deter investment in new mills.https://t.co/zdE7VnkWGA
— Mortgage Professional America Magazine (@MPAMagazineUS) April 9, 2025
“While the complexity of these reciprocal tariffs makes it hard to estimate the overall impact on housing, they will undoubtedly raise some construction costs,” Buddy Hughes, chairman of the National Association of Home Builders (NAHB), said in a statement.
Federal Reserve could take wait-and-see approach
Rumors have been swirling for days about what actions the Federal Reserve will take regarding interest rate cuts.
Traders have bounced back and forth between three and five projected rate cuts through the rest of 2025, with some predicting an emergency rate cut could precede the next meeting in May.
Kay Haigh, global co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management, told CNBC that the Fed may have some tough choices ahead.
“Today’s softer than expected CPI release feels backward looking given the large changes to trade policy seen in recent days,” Haigh told CNBC. “Going forward, the Fed is likely to face a difficult trade-off as tariff-driven price increases start to feed through to the inflation data and activity remains soft.”
However, Williamson believes the Fed will see how the tariffs will impact the economy and inflation before deciding on a course of action.
“While this is encouraging for the Federal Reserve's inflation fight, rate cuts remain unlikely as policymakers wait to see the effects of recent tariff changes reflected in future data,” Williamson said.
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