U.S. Inflation Cools in March: CPI Posts Surprise Decline

Washington, April 10, 2025 — The U.S. consumer price index (CPI) report for March delivered a surprise to markets and policymakers alike: headline inflation unexpectedly fell month-over-month, with both the monthly and annual data signaling continued progress in the disinflationary trend.

Headline Numbers: Weakness Across the Board

According to the Bureau of Labor Statistics (BLS), the headline CPI declined by 0.1% on a seasonally adjusted basis, marking the first monthly drop since October 2024. This comes after a modest 0.2% increase in February. On a yearly basis, CPI rose 2.4%, down from 2.8% the previous month, surprising analysts who were expecting a smaller deceleration.

Key figures from March:

• CPI YoY: +2.4% (vs. 2.5% expected, 2.8% prior)
• CPI MoM: -0.1% (vs. +0.1% expected)
• Core CPI YoY (ex-food & energy): +2.8% (vs. 3.0% expected)
• Core CPI MoM: +0.1% (vs. 0.3% expected)

These results suggest broad-based softness in consumer prices, notably in energy and some service categories.

Energy Prices Drive Headline Decline

The energy index plunged 2.4%, primarily due to a sharp 6.3% drop in gasoline prices, which was more than enough to offset gains in electricity (+0.9%) and natural gas (+3.6%). Over the year, the energy index is down 3.3%, with gasoline prices having fallen nearly 10% since March 2024.

Food Prices Still Rising

Food inflation, however, remains persistent. The food index increased by 0.4% in March, with food at home up 0.5% and food away from home rising 0.4%. On a yearly basis, food prices are up 3.0%, continuing to squeeze household budgets.

Core Inflation Moderates but Stays Sticky

Core CPI, which excludes food and energy, rose just 0.1% on the month, the smallest increase since late 2023. On an annual basis, core CPI slowed to 2.8%,
the lowest reading since March 2021.

Shelter costs—a major component of core inflation—remained sticky:

• Rent: +0.3% MoM
• Owners’ equivalent rent: +0.4%
• Lodging away from home: -3.5%

Despite the monthly softness, shelter prices are still up 4.0% YoY, continuing to account for a large share of the core CPI’s stickiness.

Other components showed mixed signals:

• Airline fares: -5.3% MoM
• Used vehicles: -1.1% MoM
• Medical care services: +0.2% MoM
• Motor vehicle insurance: -0.6% MoM

A Broad-Based Disinflationary Trend

Charts provided by CNBC vividly show the continued decline in both the headline and core CPI YoY figures, maintaining the downward trajectory seen since mid-2022. The headline rate of 2.4% matches levels not seen since early 2021.
On a monthly basis, the negative print stands out as the second decline since November 2024, and the sharpest since the early pandemic shocks.

What’s Next for the Fed? Tariff Tensions Complicate the Path

While the latest CPI print clearly signals disinflation, the path forward for the Federal Reserve may become more complex due to emerging inflationary risks from trade policy. The Trump administration recently announced a new round of tariffs. These measures, part of a broader push for economic protectionism, could reignite cost pressures in key sectors and potentially spill over into the broader CPI in the months ahead.

CNBC highlights that while markets initially celebrated the lower inflation data, the tariff announcements have introduced a new layer of uncertainty. Rising import costs could limit the Fed’s flexibility to ease policy, especially if core goods inflation reverses its current downward trend.

Despite the softer March data, some policymakers may adopt a cautious tone, waiting to assess the second-round effects of the tariffs before committing to any rate cuts.

Market Reaction: Yields and Equities Respond

Following the release:

• U.S. Treasury yields declined, reflecting investor expectations that rate cuts could come sooner, particularly if inflation continues to weaken.
• Equities rose sharply, with tech stocks and consumer discretionary sectors leading gains, supported by the prospect of a more dovish Fed.
• The U.S. dollar slipped, as markets priced in the potential for looser monetary policy.

However, these moves were completely retraced later in the session as traders digested the potential inflationary implications of trade tariffs, a theme that could dominate monetary policy discussions in Q2.

Conclusion: A Soft CPI Print, But Risks Ahead

The March CPI report underscores meaningful progress in the Fed’s inflation fight: both headline and core metrics are moving in the right direction. Yet, the picture is far from settled.

While the 2.4% YoY inflation print opens the door to rate cuts, the Trump administration’s protectionist turn introduces upside risk to inflation that could complicate monetary easing. For now, markets are cautiously optimistic, but the next few months will test whether disinflation can persist in the face of geopolitical and trade-driven headwinds.

All eyes now turn to April CPI and the upcoming FOMC meeting—with traders and policymakers alike walking a fine line between easing too early and letting new inflation impulses take hold.

Under normal circumstances, such data would typically lead to a sharp rally in U.S. bonds and equities, as markets would anticipate additional rate cuts by the Federal Reserve. However, in the current environment marked by heightened uncertainty and fear, there has been a pronounced flight from both asset classes. This dynamic is also contributing to sustained weakness in the U.S. dollar, despite a widening interest rate differential with currencies such as the euro. This divergence could pose significant risks. The U.S. Treasury market is one of the largest and most liquid globally, and the potential for contagion across other markets cannot be dismissed. Furthermore, clear signs of an economic slowdown are emerging in the United States. Persistently low or lower-than-expected inflation may also indicate that the slowdown is approaching more rapidly than anticipated.