The outlook for future inflation and economic growth is on everyone’s minds this week as President Trump announced sweeping tariffs on imports and the stock market plunged in response. Economists are parsing March data to get a picture of where the American economy was before the tariffs. This week’s Consumer Price Index report, which tracks the prices of goods and services, will provide valuable insight into the state of inflation before the impact of these new tariffs becomes truly apparent in American prices. Here are five things to watch for in Thursday’s report.
The numbers
Forecasters surveyed by Bloomberg estimate that prices in March ticked up 0.1% from February and 2.5% from a year ago. This would mark a slower rate of increase than in February, when prices rose 0.2% from the previous month and 2.8% over the year. The Fed’s desired inflation target is 2% yearly, so these rates would be slightly higher than is ideal, but not high enough to truly be cause for concern. However, these numbers are a snapshot of the economy before the tariffs, which are expected to spell much larger price hikes in future months.
“If it wasn’t for Trump and his tariffs, the inflation backdrop would be fine,” said Stephanie Roth, Chief Economist at Wolfe Research. “But that’s a big ‘if.’”
Rising retail costs will begin to show tariff impacts
Retail costs likely rose this month, as Trump’s first round of February tariffs on China began to show up in higher prices. On Feb. 4, Trump imposed 10% tariffs on China, and raised that number to 20% on March 4. This is the first month that price increases because of these tariffs will be reflected in the report. On April 2, Trump imposed an additional 34% tariff on China, and increased the total tariffs to 125% on April 9. However, price increases from these newest tariffs will not be reflected in the data until next month’s report at the earliest.
Potentially rising car prices
Car sales surged at the end of March as consumers rushed to purchase cars before Trump’s 25% tariffs on imported cars took effect. While the broad impact of these tariffs won’t be reflected in the March data, car prices may have risen slightly in response to the surge in demand.
Falling gas and food prices
Prices for gasoline and food likely fell this month. Egg prices in particular have fallen this month, a welcome relief for consumers since egg prices hit a 10-year high in February. Prices were driven up by a supply shortage due to an outbreak of avian flu, but that outbreak has since been contained and the supply has stabilized. These falling prices are the reason that inflation rates are likely lower than previous months, as they balanced out rising costs in other sectors.
Does it matter to the Fed?
While March prices are expected to show a slight decrease in the inflation rate, don’t expect this to translate to a Fed rate cut. In a recent speech, Fed chair Jerome Powell reiterated the central bank’s position that it is too soon for them to make any changes to monetary policy until the full effects of Trump’s agenda are apparent. He acknowledged that tariffs will raise prices, but expressed uncertainty about the duration and strength of the tariff effect. March’s inflation data will help the Fed figure out how much inflation improved before broad tariffs were imposed, but any rate changes will depend on economic data from the months ahead.