Inflation in the United States cooled more than expected in March, offering relief to markets and potentially paving the way for the Federal Reserve to begin cutting interest rates later this year.
The consumer price index (CPI) dropped 0.1% on a seasonally adjusted basis in March, lowering the annual inflation rate to 2.4%, down from 2.8% in February. That was below economists’ expectations of 2.6%.
Core CPI, which excludes food and energy, also eased to a 2.8% annual rate—its lowest since March 2021—rising just 0.1% on the month. Wall Street had expected 3% core inflation.
The sharp drop in energy prices helped bring inflation down. Gasoline prices fell 6.3% in March, leading to a 2.4% drop in the broader energy index. Meanwhile, food prices continued to rise, climbing 0.4% on the month. Egg prices soared 5.9%, bringing the year-over-year increase to a staggering 60.4%.
Shelter costs, one of the most stubborn components of inflation, rose only 0.2% in March and were up 4% year-on-year—the slowest pace since late 2021. Used car prices dropped 0.7%, while new vehicle prices rose just 0.1%, ahead of impending tariffs on autos.
Other items saw significant declines: airfare dropped 5.3%, auto insurance fell 0.8%, and prescription drug prices declined 2%.
Despite the cooler inflation data, markets opened lower on Thursday. Stock futures fell sharply, and Treasury yields moved down as investors digested the numbers alongside geopolitical and trade-related uncertainties.
Just one day earlier, President Trump announced a partial delay in his sweeping tariff plan, leaving in place a 10% blanket import levy but allowing for a 90-day window to negotiate additional duties. While that decision eased some concerns, it added to policy uncertainty, making it harder for the Fed to adjust course.
Trump has publicly pushed for interest rate cuts, but Fed officials remain cautious. Analysts expect the first rate cut could come in June, depending on how inflation and growth data evolve.
Kay Haigh, global co-head of fixed income at Goldman Sachs Asset Management, noted: “Today’s soft CPI data is backward-looking. The real challenge for the Fed lies ahead, as tariff-driven inflation starts to work its way into the system while economic activity remains sluggish.”
Futures markets now reflect expectations for three to four rate cuts by year-end, up from two previously. The Fed’s path forward will depend heavily on the next few months’ data.
