Inflation Eases, But Tariffs Fuel Consumer Spending Surge

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Inflation Eases, But Tariffs Fuel Consumer Spending Surge/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ Inflation slowed in March, with core prices rising just 2.6% year-over-year, but economists warn this may be short-lived as Trump’s sweeping tariffs take hold. Consumers ramped up spending, particularly on vehicles, in a bid to avoid expected price hikes. Analysts predict inflation could rebound later in 2025, potentially surpassing 3%.

A shopper looks at a clothing display at a Gap store, Friday, April 18, 2025, in Miami Beach, Fla. (AP Photo/Marta Lavandier)

US Inflation and Tariffs: Quick Looks

Inflation rose 2.3% annually in March, down from 2.5%
Core inflation slowed to 2.6%, easing from February’s 2.8%
Consumer spending jumped 0.7% from February to March
Auto spending surged 8.1% as buyers raced to beat tariffs
25% tariff on imported cars began April 3
Restaurant and hotel spending also rebounded in March
Q1 GDP shrank by 0.3%, first decline in 3 years
Surge in imports reflects pre-tariff stockpiling by businesses
Trump’s tariffs: 25% on steel, aluminum, autos; 10% on most imports
China faces steepest penalty—145% tariff on exports
Fed expected to hold interest rates amid economic uncertainty
Trump urges rate cuts, but Powell signals a cautious wait

Inflation Eases, But Tariffs Fuel Consumer Spending Surge

Deep Look

Inflation Slows, But Consumer Spending Surges Ahead of Trump’s Tariff Shock

WASHINGTON — As inflation appeared to cool in March, Americans rushed to spend, particularly on vehicles, amid mounting fears of price hikes tied to President Donald Trump’s sweeping new tariffs.

New data released Wednesday by the Commerce Department showed inflation rising at a more modest pace, with the personal consumption expenditures (PCE) price index — the Federal Reserve’s preferred measure — climbing 2.3% over the past year. Core inflation, which strips out food and energy, dipped to 2.6% from February’s 2.8%.

The data offers a brief reprieve in the fight against inflation. But economists warn that it’s likely the calm before the storm.

Tariff Pressure Driving Consumer Behavior

The modest inflation reading may not last long. Trump’s 25% tariffs on imported autos and a wide range of goods began taking effect in early April, and economists expect those costs will soon ripple through consumer prices, potentially pushing inflation back toward or above 3% by year’s end.

Americans appear to be preparing for that possibility. Consumer spending rose by a strong 0.7% in March, driven largely by a rush to buy big-ticket items like cars. Auto spending alone surged 8.1%, a spike many analysts attribute to households and businesses seeking to beat the April 3 deadline when new auto tariffs kicked in.

Spending on restaurants and hotels also increased, suggesting that many consumers still feel confident enough to indulge in travel and leisure — though this may also reflect a pre-tariff spending boost.

Economy Contracts as Trade Disruption Deepens

Despite the uptick in March spending, broader economic signals remain concerning. The Commerce Department confirmed earlier Wednesday that U.S. GDP shrank by 0.3% in the first quarter — the first contraction since early 2022. The downturn was largely driven by a flood of imports, as businesses rushed to stock up on goods before tariffs raised their costs.

That import surge subtracted heavily from GDP calculations and painted a portrait of an economy bracing for prolonged trade disruption.

Trump’s Inflation Gamble

President Trump has repeatedly claimed his tariffs will ultimately benefit the U.S. economy by bringing manufacturing jobs home and boosting American industry. But critics argue that the policies are already straining consumers and businesses — and they warn of more pain ahead.

Since taking office in January for a second term, Trump has imposed a 25% duty on steel, aluminum, and cars, along with a 10% tax on most other imports. His administration also levied a massive 145% tariff on goods from China, a move that has raised fears of a prolonged trade war with America’s third-largest trading partner.

In response to the GDP slump, Trump took to social media, urging Americans to “BE PATIENT” and predicting that the country is on the cusp of a “boom like no other.”

But economists say the early signs are troubling. The data suggests that while Americans are spending for now, a tariff-fueled inflation surge may soon erode purchasing power — and with it, economic growth.

Fed Stays Cautious

The Federal Reserve, which targets a 2% inflation rate, is watching closely. Fed Chair Jerome Powell has indicated the central bank is in no rush to lower interest rates again, even as inflation cools slightly.

“The Fed will need to weigh the short-term disinflation against longer-term tariff-driven price increases,” said Laura Geller, chief economist at EquityOne. “It’s a policy dilemma with no easy fix.”

The Fed’s next interest rate decision is due next week, and few expect major moves. For now, officials are taking a wait-and-see approach as they assess how Trump’s trade war plays out across markets and household budgets.