U.S. Inflation Cools to 2.4% in March, Surprising Economists; Core Inflation Hits 4-Year Low

The pace of inflation in the United States slowed more than anticipated in March, offering a fresh sign of cooling consumer prices and potentially paving the way for interest rate adjustments later this year.

According to data released Thursday morning by the U.S. Bureau of Labor Statistics, the Consumer Price Index (CPI) fell by a seasonally adjusted 0.1% in March, bringing the year-over-year inflation rate down to 2.4%—a notable drop from February’s 2.8% reading and significantly below the 2.6% forecast by Wall Street analysts.

Excluding the volatile food and energy categories, core inflation rose just 0.1% for the month, placing the annual core rate at 2.8%, its lowest level since March 2021.

Energy Prices Drive the Downturn

The unexpected deceleration was largely attributed to a sharp fall in energy prices, particularly gasoline. The energy index plunged by 2.4%, fueled by a 6.3% drop in gasoline prices alone. This outweighed modest increases in food costs, which rose by 0.4%, with egg prices jumping another 5.9% in March and standing a staggering 60.4% higher than a year ago.

Meanwhile, shelter costs—a persistent driver of inflation—showed signs of moderation. They rose just 0.2% in March, pushing the 12-month gain to 4%, the smallest annual increase in nearly three and a half years. Vehicle prices were mixed, with used car prices falling 0.7%, while new car prices edged up by 0.1% ahead of expected industry tariffs.

Airline fares also saw a significant 5.3% decrease, while motor vehicle insurance premiums dropped 0.8%, and prescription drug costs fell 2%, contributing to the overall decline.

Market Reaction and Political Context

Markets responded swiftly to the inflation report. Stock futures turned sharply lower as traders reassessed the Federal Reserve’s likely path on interest rates. Yields on U.S. Treasurys also dipped following the data release.

The inflation report comes on the heels of a major policy pivot by President Donald Trump, who this week backed off from implementing some of the more aggressive tariffs originally planned against numerous U.S. trading partners. The administration instead maintained a blanket 10% tariff on all imports and introduced a 90-day negotiation window to discuss further increases.

While Trump has repeatedly emphasized inflation control as a cornerstone of his economic policy, analysts note that progress on this front has been slower than anticipated during the early months of 2025.

The administration’s abrupt trade policy shift adds a layer of complexity to the Federal Reserve’s decision-making process. Central bank officials have so far shown caution in adjusting interest rates amid growing geopolitical and economic uncertainty. Current futures market indicators suggest the Fed may begin easing rates around June, with three to four cuts priced in for the remainder of the year.

Experts Caution Against Over-Optimism

Economists warn that while the current report offers a welcome break from rising prices, the potential inflationary impact of impending tariffs remains a concern.

“Today’s softer-than-expected CPI release feels backward-looking given the large changes to trade policy seen in recent days,” said Kay Haigh, global co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management. “Going forward, the Fed is likely to face a difficult trade-off as tariff-driven price increases start to feed through to the inflation data and economic activity remains soft.”

Despite today’s encouraging data, the road ahead appears uncertain as the global economy adjusts to shifting U.S. trade strategies and the lingering aftershocks of inflation that rattled consumers and markets over the past two years.