Forecasts for March CPI Report Show Inflation Moderated, but Tariff Impacts Are Looming

Key Takeaways

• Inflation overall likely moderated somewhat in March, partly thanks to declines in energy prices, while core inflation remained stickier.
• Analysts say tariffs announced by President Trump will increase price pressures, at least in the short term.
• Bond traders see a one-in-three chance of a rate cut at the Federal Reserve’s May meeting.

Forecasts for the March Consumer Price Index report show inflation moderated slightly last month, thanks to falling energy and gasoline prices. Analysts expect inflationary pressures persisted in other areas like food and core goods.

The data will come as new tariffs announced by US President Trump have roiled global financial markets and prompted a dramatic recalibration of expectations for inflation and economic growth in the months ahead.

Overall, economists expect that consumer prices rose 0.1% on a monthly basis in March, according to FactSet’s consensus estimates. That would reduce the annual inflation rate to 2.6% in March from 2.8% in February. Economists expect that core inflation, which excludes volatile food and energy prices, rose 0.3% on a monthly basis and 3.0% on an annual basis.

The CPI data released Thursday will provide insight into how inflationary pressures looked last month, including some early impacts of tariffs already implemented. However, senior Vanguard economist Josh Hirt says this has “become a lot less important than the forward-looking view.” He’s anticipating 0.09% overall inflation growth in March and 0.25% core inflation growth.

Analysts expect the new tariffs to boost inflation in the months ahead if they stay. “While there remain many uncertainties around the duration, pass-through and second-round price effects of these tariffs, the direction of travel is clear,” Wells Fargo economists wrote last week.

February CPI Report Highlights

• CPI report release date and time: Thursday, April 10 at 8:30 a.m. EST
• The CPI is forecast to rise 0.1% in March after rising 0.2% in February.
• Core CPI is forecast to rise 0.3% in March after rising 0.2% in February.
• The CPI year over year is forecast to rise 2.6% in March after rising 2.8% in February.
• Core CPI year over year is forecast to rise 3.0% in March after rising 3.1% in February.

When Will Tariffs Affect Inflation?

The impact of new levies enacted earlier this year could begin to show in March’s data. “We have penciled in modest upward pressure from tariffs imposed in February on categories that are disproportionately imported from China, such as the apparel, recreation, and communication categories,” Goldman Sachs analysts wrote Tuesday.

Hirt says he’ll be watching the continuing divergence between goods and services inflation for clues about the impact of tariffs. After helping pull inflation lower for the past year or more, goods prices have strengthened over the past two months, while services inflation has remained more muted. That could be a result of firms frontrunning higher import prices. “It’s tough to tell with such limited data, but we do think that is is from some ... reaction to expectations of tariffs,” he says. “That will be something to watch as this year progresses.”

When Will the Fed Cut Rates?

Amid last week’s market turmoil, traders rapidly increased their expectations for Fed rate cuts. Those expectations had moderated somewhat by Tuesday morning, with bond futures markets pricing in a roughly 33% chance of a cut at the May meeting and a 63% chance of four cuts by the end of the year, according to the CME FedWatch Tool. Traders saw odds as high as 85% for three or more rate cuts in the midst of last week’s market turmoil.

The double-edged impact of tariffs—slower growth and higher inflation—could prove difficult for central bankers to navigate. For much of the past two years, officials have stressed that they will remain data-dependent rather than make decisions on a prescribed course.

In an appearance last week, Chair Jerome Powell said the central bank remains attentive to the risk of higher inflation stemming from tariffs and will not rush any policy moves: “It feels like we don’t need to be in a hurry. We’re going to have to wait and see how this plays out before we start to make adjustments.”

Hirt also expects the Fed to hold steady, at least for now: “We think the initial stages of this are going to be the Fed not doing anything. There’s a lot of uncertainty.”