Have Donald Trump’s tariffs tamed inflations? Here’s what the latest CPI report reveals

A surprising takeaway from the latest U.S. Consumer Price Index (CPI) report is the role President Donald Trump's tariffs are playing in temporarily easing inflation.

While such duties are typically associated with higher prices, economists suggest that, for now, they may be exerting downward pressure on inflation, offering a short-lived reprieve for consumers and complicating the Federal Reserve’s policy stance.

Tariffs Spur Global Jitters, Restrain Demand

Trump's sweeping tariffs—part of his broader trade strategy—have rattled global markets and stirred recession concerns.

That unease has dampened global demand and slowed economic activity, both of which can suppress price growth.

According to Ryan Sweet, chief U.S. economist at Oxford Economics, the tariffs are indirectly restraining Americans’ spending power, especially on discretionary services, as per a report by USA Today.

While this temporary effect is unlikely to outweigh the long-term inflationary impact of such trade barriers, the immediate consequence has been a modest softening in prices, evident in the latest inflation readings.

“The inflation numbers are going to look good in April and possibly May,” said Sweet. “But the boost to inflation from tariffs is coming.”

CPI Data Reflects Mixed Influences

Inflation as measured by the CPI cooled in March, with overall prices rising just 2.4%—the lowest since October 2023.

Core inflation, which excludes volatile food and energy prices, eased to 2.8%, its most subdued pace since March 2021. On a month-to-month basis, inflation was nearly flat.

This cooling was not solely due to the tariff effect. Analysts cite plunging used car prices and the slowest rent growth since January 2022—just 4% annually—as significant contributors, as mentioned in a report by USA Today.

However, economists believe the disinflationary influence of tariffs may grow stronger in April and May.

Bloomberg’s economist survey suggests April inflation held steady at 2.4%, while Barclays projects a further dip to 2.3%, inching closer to the Fed’s 2% target.

Fuel Prices and Travel Costs Decline

One notable outcome of the tariff-induced economic slowdown has been a decline in oil and gasoline prices. U.S. crude dropped to roughly $60 a barrel from $80 in January, coinciding with Trump’s April 2 announcement of wide-ranging reciprocal tariffs.

Lower fuel costs have translated into cheaper airline fares, which Barclays estimates dropped another 2% in April, following declines of 4% and 5.3% in February and March respectively.

Airline fares usually climb in spring, yet this year’s decline is likely tied to weakening sentiment, fewer foreign visitors—especially from Canada—and reduced discretionary travel by Americans.

Financial Services Fees Also Eased

Stock market turbulence tied to trade uncertainty has also affected inflation metrics. A post-tariff dip in the S&P 500 has reduced the value of investment portfolios, leading to lower advisory fees.

While these costs carry limited weight in the CPI, they significantly influence the personal consumption expenditures (PCE) index—a key inflation gauge for the Fed.

Fed Dilemma: Inflation Slows but Risks Loom

This unusual softening in inflation could pose a dilemma for Federal Reserve Chair Jerome Powell. Should job growth also cool in the coming months, pressure could mount for interest rate cuts.

“If you get a disappointing jobs report and the inflation numbers look good, the market will say, ‘Why aren’t you cutting?’” Sweet noted, as quoted in a report by USA Today.

However, both Sweet and Barclays economist Pooja Sriram caution that the deflationary spell won’t last. They expect tariffs to start exerting upward pressure by midyear, with core inflation potentially rising to around 4% by year-end.

For now, though, Trump’s tariffs are offering a counterintuitive assist in the Fed’s inflation fight—even if the relief proves fleeting.

FAQs

Why are Trump’s tariffs lowering inflation right now?

Despite typically raising prices, the tariffs have unsettled global markets and reduced economic activity, weakening demand and thereby temporarily slowing inflation.

What did the latest CPI report show?

The Consumer Price Index rose 2.4% in March—its lowest since October 2023. Core inflation, which excludes food and energy, dropped to 2.8%.