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US Economic Perspectives: March 2025 CPI and Inflation Analysis

Key Findings:

• CPI Inflation: Headline inflation unexpectedly slowed to 0.05% (pre-adjusted: +0.48 points). Twelve-month inflation slowed to 2.39% from 2.82%, indicating the lowest monthly headline CPI increase in nearly a year.
• Core CPI Inflation: Core CPI slowed significantly (0.06%, +24bp from the previous reading) to 2.79% over the twelve months, also the lowest increase since the start of the inflation surge.
• Driving Factors:
  • Energy prices fell (including gasoline and overall energy goods) as solid increases typical for March did not materialize.
  • Food prices rose strongly in nominal terms but are likely to peak.
  • Services prices moderated, particularly significant in travel-related sectors (lodging away from home, transportation services) showing large declines.
  • Core goods prices fell slightly below projections, mainly due to used vehicle price declines.
  • Medical care commodity prices saw an unexpected 1.1% drop.
• Tariff Perspective: The impact of recent tariff increases on inflation is not yet evident, but anticipates larger monthly increases in coming months (starting April), with potential for significant effects by July/Otober if tariffs remain steady.
• Rental Costs: Although variable, owner's equivalent rent (OER) continued to rise.
• PCE Projections: UBS projects a significant pickup in core PCE inflation next month (40-49bp increase), falling short of their initial headline CPI projection.

Implications:

March's data shows US inflation is decelerating but remains sustainably elevated above 2%. The moderation stems from various factors, most notably falling energy and travel costs, but is not anticipated to return
to pre-pandemic norms any time soon. Heading into April, the analysis indicates inflation may stabilize temporarily before potentially resuming a slightly steeper path due to tariffs later in the year.