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Takeaways
- A key measure of inflation is likely to show that consumer prices remained flat in March as gas prices dropped and dragged the overall inflation down.
- The reprieve is likely short-lived: economists expect President Donald Trump's campaign of imposing tariffs on trading partners will push consumer prices. They expect inflation data to reflect these effects as early as may.
- The Federal Reserve was making some progress in lowering core inflation to a 2% rate annually before the tariffs were implemented.
Tariffs are expected to raise the cost of living, but Wednesday's report on inflation and spending will likely show little evidence of that.
The Bureau of Economic Analysis will release the Personal Consumption Spending report on Wednesday. According to a Wall Street Journal and Dow Jones Newswires survey of economists, the report will likely show that cost of living in March remained flat after increasing 0.3% in February. This would be the lowest inflation rate in the last 12 months at 2.2%.
The Consumer Price Index data, released earlier this month, showed a similar trend. Gas prices were a major factor in the Consumer Price Index, which was released earlier this month.
Inflation may still be on the way
The inflation reprieve will likely be short-lived.
Economists believe that the tariffs imposed by Donald Trump in April will cause consumer prices to rise, as retailers pass on the costs of import taxes. RBC economists expect the surge in inflation to be reflected in the May data, which will then be reported in June.
If the report on Wednesday matches expectations, then it will show how well the economy was doing before Trump’s trade conflicts shook up the system. Not only did inflation slow, but economists also expect “core inflation”, which excludes volatile food and fuel prices, to have increased only 0.1% in the last month.
This is down from 0.4% in Feburary, making it a 2.6% rise over the past year. This would be lowest annual core inflation in March 2021.
The Fed bases the 2% inflation target it has set on Core PCE inflation, as food and energy prices are subject to fluctuations for reasons which have little or no relation to inflation trends. Cooling core inflation is usually a positive sign for Federal Reserve officials, and would encourage central bankers lower their benchmark interest rates.
Fed officials are waiting to see the outcome of Trump’s tariff wars before they make any decisions.
Updated April 29, 2025 This article has been updated with the latest consensus projections by the Wall Street Journal, Dow Jones Newswires and Dow Jones Newswires.
