by paul gomme and peter rupert
The BLS announced that the CPI fell 0.60% on an annualized basis in March, down from 2.62% in February. The year-over-year inflation fell from 2.81% (February) to 2.40% (March) while our trend measure dropped from 3.62% to 2.21%.
Inflation as measured by core CPI inflation (excluding food and energy) similarly fell. The annualized month-over-month rate tumbled from 3.49% to 2.55% while the year-over-year rate dipped from 3.14% to 2.81%. Our trend measure of core CPI inflation dropped even more, from 3.49% to 2.55%.
What does the CPI portend for the PCE deflator (to be released in a couple of weeks) and so monetary policy? Frankly, it’s hard to tell. While CPI and PCE inflation move together when looking at long periods of time, at much shorter horizons there’s a much looser link. For example, February’s CPI inflation fell relative to January, yet PCE inflation rose.
The good news for the policy outlook is that, at the time we are writing, President Trump has put a 90 day pause on his plan to raise tariffs on most countries. The one exception is China: both countries have raised their bilateral tariffs to prohibitively high values.
