The next Consumer Price Index report for the month of March will be released on April 10. Expectations are that headline monthly inflation will be flat due, in part, to falling energy prices. However, core CPI may rise between 0.2% and 0.3%. That’s according to latest nowcast estimates from Cleveland Federal Reserve models. March’s CPI Report for the month of February showed 0.2% monthly headline inflation and the same rate for core inflation.
The inflation report will be closely analyzed for any early tariff impact. Annual inflation is likely to stay above the Federal Open Market Committee’s 2% annual target, but the report will be watched for signs of cooling inflation in major categories. If so, this may ultimately support interest rate cuts in summer 2025.
Recent Inflation Trends
Inflation has slowed significantly from peak levels of 2022. However, the path for disinflation has been uneven, since September 2024, inflation has accelerated slightly. There’s some optimism that inflation could cool.
Fed Chair Jerome Powell stated, “The path to sustainably returning inflation to our target has been bumpy, and we expect that to continue. We see ongoing progress in categories that remain elevated, such as housing services and the market-based components of non-housing services. Inflation can be volatile month-to-month, and we do not overreact to one or two readings that are higher or lower than anticipated,” at a speech in Chicago on March 7.
Therefore, the FOMC is unlikely to read too much into April’s CPI report, but cooling inflation would be welcome.
Early Signs Of Tariffs’ Impact On Inflation
Recent tariffs on certain imports from Canada, China, Mexico, as well as on steel and aluminum, may contribute to inflation. That’s because tariffs are essentially a tax on imported products, raising their prices.
With multiple tariffs coming into force in March, the CPI report will be closely watched for any tariff impact. However, with tariffs introduced mid-month in most cases, the subsequent report for April, released on May 13, may offer deeper insight on any tariff implications.
For the FOMC there are two questions concerning tariffs. The first is to what extent tariffs are changing overall inflation. The second is to what extent the FOMC should react to any one-off tariff impact on inflation, since the FOMC’s goal is managing the overall level of inflation and not necessarily reacting to specific tariffs. That said, there could also be second-order impacts from tariffs. These could include the economic effects of retaliatory tariffs on exporting industries, price rises on similar goods domestically due to competitive dynamics. Further, the recent decline in consumer and business confidence that appears to be linked to tariffs, too. Overall, the economic environment appears highly uncertain, and March’s CPI report may offer a little more clarity.
Upcoming FOMC Interest Rate Decisions
The FOMC will meet on March 19 before the next update to CPI inflation. The chance of an interest rate cut at that March meeting is viewed as extremely low by markets. However, there’s currently a small chance of an interest rate cut on May 7 or a more significant chance on June 18. To the extent there are signs of disinflation in April’s CPI report, that may reassure the FOMC and make future interest rate cuts as little more likely. However, recent concerns about recession risk, or at least a somewhat slowing economy, will occupy the FOMC too, and it may be that weaker economic data prompts interest rate cuts, even if inflation remains higher than the FOMC would prefer.
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