What to Expect from Thursday’s Inflation Report

Key Takeaways

• Consumer Price Index (CPI) data shows that inflation slowed down in March. It fell to 2.5% from 2.8%, a decrease of 2.5% on an annual basis.
• Although inflation is cooling, economists say President Donald Trump's tariffs could push it up again.
• Many forecasters predicted that the "reciprocal" tariffs against trading partners would be at least partially rolled back, resulting in a less severe inflation surge by the end of 2025 than if Trump kept them.

The lower price of gas likely contributed to a slowdown in consumer price increases in March, but forecasters do not expect this low inflation to last through President Donald Trump’s tariff rampage.

According to a Dow Jones Newswires/The Wall Street Journal survey of economists, the Bureau of Labor Statistics’ report on the Consumer Price Index is expected to show that the inflation gauge increased 2.5% in the last year in March. This is down from 2.8% in February. Falling energy prices have helped to ease household budgets.

If the report confirms expectations, the post-pandemic surge of inflation will continue to fade. However, beyond March, the outlook largely depends on President Donald Trump’s sweeping array of tariffs announced over the last few weeks.

Tariffs on cars and steel, as well as goods imported from the majority of countries, were set to take effect in April. Many economists predict that import taxes are likely to increase the cost of consumer products.

Tariffs may have already influenced consumer prices. Economists are looking for signs of the 20% tariff on Chinese goods, imposed in march, to show in CPI figures. In addition, auto prices could have been pushed higher as shoppers rushed into dealerships to beat the tariffs. Nomura economists predict that an increase in auto prices could lead to a rise in “core” CPI (consumer price index) prices, which exclude volatile food and energy prices.

Many forecasters based their projections on the assumption Trump would implement less severe tariffs after negotiating with trading partner than those he announced last week on “Liberation Day”. Forecasters from UBS say that if tariffs do not get rolled back, annual inflation may reach 5%.

Bhanu Bawaja is a strategist for UBS. In a recent commentary, she wrote: “The magnitude and potential damage that they could cause the U.S. Economy makes rational minds consider the possibility that they will remain low.”