WASHINGTON (AP) — Inflation in the United States decreased last month, as the cost of gasoline, airfares, and hotel rooms dropped, a sign of cooling prices even as President Donald Trump intensified his tariff threats.
Consumer prices increased by only 2.4% in March compared to the previous year, the Department of Labor reported on Thursday, down from 2.8% in February. That is the lowest figure since September.
Excluding the volatile categories of food and energy, core prices increased by 2.8% compared to the previous year, down from 3.1% in February. This is the smallest increase in core inflation in almost four years. Economists closely monitor core prices because they are considered a better indicator of where inflation is heading.
The report shows that inflation is cooling down, for now. However, economists say that Trump’s huge tariffs on China and a universal 10% rate will likely increase prices in the coming months. The higher import taxes will also likely weigh on economic growth.
At a monthly rate, prices actually fell by 0.1% in March, the first drop in almost five years. Core inflation increased by just 0.1% in March compared to February.
The prices of used cars fell by 0.7% from February to March, the government said. The cost of car insurance dropped by 0.8%, although insurance costs rose by 7.5% annually.
One reason why prices fell was the sharp declines in travel-related costs, including airfares, which dropped by 5.3% from February to March. Hotel room prices also decreased by 3.5%. Economists said that these declines partly reflected a much slower international demand, as the number of tourists visiting the United States has plummeted amid Trump’s aggressive trade policy.
Visits to the United States from abroad dropped by almost 12% last month, according to government data.
However, the cost of groceries jumped 0.5% last month, the report showed, as egg prices increased by 5.9% to a new record average price of $6.23 per dozen. Clothing prices rose by 0.4%, although they have increased little in the past year.
Last week, Trump imposed widespread tariffs on almost 60 nations, which sent financial markets into a nosedive and hit business and consumer confidence. However, on Wednesday, he paused those tariffs for 90 days. He maintained a 125% tax on all imports from China and a 25% tax on steel, aluminum, imported cars, and many goods from China and Mexico.
Economists say that the remaining tariffs will likely still increase inflation this year, even with the 90-day pause.
Even with the pause, many companies are still uncertain about where trade policy is heading. Trump has also said that tariffs will be imposed on pharmaceutical imports.
Consumers are likely to see some prices rise due to existing tariffs, including the hefty tariffs on China. The United States imports over $60 billion worth of iPhones and other mobile phones each year from China, as well as significant amounts of clothing, shoes, and toys.
Many American companies are likely to move their production out of China, a process that had already started during Trump’s first term, when he imposed tariffs on some of its exports. Nevertheless, China remains the third largest trading partner of the United States.
The shift of supply chains away from China will likely take time and come with its own costs, which could increase prices for American consumers in the coming months.
Last week, the Federal Reserve Chairman, Jerome Powell, said that the central bank would likely keep its key interest rate unchanged at around 4.3% while waiting to see how Trump’s policies impacted the economy. On Friday, Trump called on the Fed to lower rates.
“There is a lot of waiting and observation, even on our part,” Powell said. “And that seems to be the right thing to do in this period of uncertainty.”