US inflation cools and Americans step up spending as they brace for
tariff impact
[May 01, 2025] By
CHRISTOPHER RUGABER
WASHINGTON (AP) — A closely watched inflation gauge cooled last month in
a sign that prices were steadily easing before most of President Donald
Trump’s tariffs were implemented.
At the same time, consumers accelerated their spending, particularly on
cars, likely in an effort to get ahead of the duties.
Wednesday’s report from the Commerce Department showed that consumer
prices rose just 2.3% in March from a year earlier, down from 2.7% in
February. Excluding the volatile food and energy categories, core prices
rose 2.6% compared with a year ago, below February’s 3%. Economists
track core prices because they typically provide a better read on where
inflation is headed.
The slowdown in inflation could be a temporary respite until the
widespread duties imposed by Trump begin to push up prices in many
categories. Most economists expect inflation to start picking up in the
coming months.
“Core inflation will inevitably rebound sharply in the coming months,”
Harry Chambers, assistant economist at Capital Economics, said in an
email. “Goods prices will rise much more strongly.”
Chambers expects core inflation will near 4% by late this year.
Wednesday’s report also showed that consumer spending increased 0.7%
from February to March, a healthy gain. Much of the increase appeared to
be driven by efforts to get ahead of duties, such as Trump's 25% duty on
imported cars, which took effect April 3. Spending on autos surged 8.1%
in March. Still, that means auto sales are likely to fade in the coming
months because those assets have already been secured.
But spending on restaurants and hotels also jumped after falling in
February, a sign Americans are still willing to splurge a little on
travel and dining out.
The spending increase is noteworthy because consumer confidence surveys
have plunged for several months, suggesting Americans have grown
increasingly worried about the economy. Yet so far, that hasn't
translated into a noticeable slowdown in spending.
Yet many economists expect it will come soon. Some businesses are
already seeing it, including some airlines.
And Sheryl Tubbs, an Idaho-based creator behind DenimFelt, which
converts secondhand denim into stuffed animals and puppets, opened her
Etsy shop in late 2019 as a way to supplement her husband’s income. She
buys supplies like boxes, buttons and thread from Chinese sellers on
Amazon and benefited from the fact that small shipments from overseas
have been exempt from tariffs, under what's known as the “ de minimis
exemption.” But the Trump administration has now closed that loophole.
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A shopper looks at a clothing display at a Gap store, Friday, April
18, 2025, in Miami Beach, Fla. (AP Photo/Marta Lavandier)
 Prices for the supplies she buys
from China are already rising. On top of that, sales dropped 50%
over the past month as her customers pulled back. She will have to
raise prices by a dollar or two on her items, which average about
$50. But she’s also coming up with new ways to market her business
like selling at a local festival and digitizing her patterns so she
can sell them.
“I definitely have to be more creative and come up with better ways
of doing it to compete,” she said.
Earlier Wednesday, the government reported that consumer spending
slowed in the first three months of the year, compared with last
year’s final quarter, as bad weather depressed shopping and
Americans took a breather after healthy spending over the winter
holidays.
The nation’s economy actually shrank 0.3% in the January-March
quarter as imports surged as companies sought to get ahead of
Trump’s tariffs.
Trump benefited in last year’s election from broad dissatisfaction
among voters about the steep rise in prices that began in 2021 and
that, on average, pushed prices up about 25% by the middle of last
year. Grocery costs shot up nearly 30%. As a candidate, Trump said
he would immediately lower prices if elected.
Yet the president has slapped 25% duties on steel and aluminum, as
well as cars, and a 10% tariff on nearly all other imports. And
China, the United States’ third-largest trading partner, now faces a
145% duty on its exports.
The inflation-fighters at the Federal Reserve target a 2% inflation
rate and pay close attention to Wednesday’s inflation gauge, known
as the personal consumption expenditures price index. The
better-known consumer price index was released earlier this month
and also showed a steady decline.
Inflation figures were revised higher for January and February,
leaving price increases in the first quarter higher than previously
estimated. The higher figures would likely leave Fed officials wary
of cutting rates soon even before taking tariffs into account.
Trump has pushed the Fed to cut its key short-term interest rate
because inflation has cooled. But Fed Chair Jerome Powell has
underscored that the central bank is likely to remain on the
sidelines as officials gauge how tariffs will impact the economy.
The Fed isn’t expected to lower its rate at its policy meeting next
week.
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AP Retail Writer Anne D'Innocenzio contributed to this story from
New York.
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