The impact of Trump’s tariffs on inflation: Did Donald Trump’s tariffs tame inflation? This is revealed by the latest CPI report
Tariffs spark global troubles, limit demand
Trump’s extensive tariffs (its wider trade strategy) have shocked global markets and attracted recession attention. This uneasiness has eased global demand and slowed economic activity, both of which can curb price growth.
Ryan Sweet, chief economist at Oxford Economics, said tariffs are indirectly limiting Americans’ ability to spend, especially in terms of discretionary services, according to the USA Today report.
While this temporary effect is unlikely to outweigh the long-term inflationary impact of such trade barriers, the direct consequence is moderately soft prices, which is evident in the latest inflation-style reading.
“The amount of inflation may be better in April and possibly May,” Nister said. “But the increase in inflation rate for tax collection is coming.”
CPI data reflects different impacts
Inflation, measured by CPI, cooled in March, with total prices rising only 2.4%, the lowest since October 2023.
The core inflation rate excluding volatile food and energy prices will easily drop to 2.8% at its gentlest rate since March 2021. Once a month, inflation is almost flat.
This cooling is not only due to the tariff effect. Today, analysts cite used car prices plunge and rent growth, the slowest rental growth, a significant contributor of 4% per year, as stated in a report from USA Today.
However, economists believe that the dissolution of tariffs may increase in April and May.
A survey by Bloomberg economists showed inflation remained at 2.4% in April, while Barclays is expected to drop further to 2.3%, closer to the Fed’s 2% target.
Fuel prices and travel costs fall
A notable result of the economic slowdown caused by tariffs is a decline in oil and gasoline prices. Starting from $80 in January, U.S. crude oil fell to about $60 a barrel, consistent with Trump’s announcement of widespread mutual tariffs on April 2.
Lower fuel costs translate into cheaper airline fares, Barclays estimated a 2% drop in April, down 4% and 5.3% in February and March, respectively.
Airline fares usually rise in the spring, but this year’s decline may be associated with a weakening of sentiment, with less discretionary travel for foreign tourists (especially from Canada) and Americans.
Financial service fees have also been reduced
Stock market turbulence associated with trade uncertainty also affects inflation indicators. The engagement lean angle of the S&P 500 reduces the value of the portfolio, thus reducing consulting fees.
Although these costs are limited in weight in the CPI, they can greatly affect the personal consumption expenditure (PCE) index, a key inflation scale for the Federal Reserve.
Feeding Dilemma: Inflation slows down but risk is imminent
This unusual softening of inflation could cause trouble for Fed Chairman Jerome Powell. If job growth is also cold in the coming months, the pressure may increase interest rates lower.
“If you receive a disappointing job report and the amount of inflation looks good, the market will say, ‘Why don’t you cut?’” Sweet quoted in a report from USA Today.
However, both Sweet and Barclays economist Pooja Sriram warned that the deflation spell would not last. They expect tariffs to start putting upward pressure on the middle of the year, and by the end of the year, core inflation could rise to around 4%.
For now, though, Trump’s tariffs provide counterintuitive aids in the Fed’s inflationary struggle, even if the relief proves to be short-lived.
FAQ
Why are Trump’s tariffs lowering inflation now?
Although prices usually raise prices, the global market for tariffs is unstable, economic activity decreases, and demand weakens, thus temporarily slowing inflation.
What does the latest CPI report show?
In March, the consumer price index rose 2.4%, the lowest since October 2023. Core inflation, excluding food and energy, dropped to 2.8%.
