In the second full month of President Donald Trump’s second term in the White House, the Bureau of Labor Statistics found that consumer price index inflation fell markedly below expectations to just 2.4% in the 12 months ending in March. In the last month alone, consumer prices actually fell by 1% on a seasonally adjusted basis thanks to a dramatic 6% fall in energy commodities and gasoline prices. Core CPI, the Federal Reserve’s preferred inflation gauge that strips away the volatile categories of food and energy, fell to 2.8% on an annualized basis, marking the first time core CPI has fallen below 3% in exactly four years.
March’s report was obviously researched before Trump’s April 2 announcement of a sweeping set of 10% universal tariffs and his so-called “retaliatory” additional tariffs on more than 60 trading partners. The data also don’t include Trump’s 90-day pause of those supplemental tariffs that he announced this past Wednesday after a bust in the bond market.
That March’s report doesn’t include the market noise from the escalation of tariff tensions makes it all the more remarkable for one simple fact: Trump’s traditional focus on economic growth and deregulation was successfully reversing the destructive inflation wrought by Bidenomics before any of the tariff nonsense.
Take a look at core CPI just to see how. Even though the 4% increase in the shelter index was still twice as high as the Fed’s maximum 2% inflation target, it was the smallest annualized increase in consumers’ largest spending category since November 2021. While some of this can be attributed to longer-standing trends and the relative calm of the off-season market, the Commerce Department’s Census Bureau found that new single-family housing starts exploded by 11.4% in February. This was in no small part due to Trump’s early executive actions to reduce land use and environmental regulations that unnecessarily hamper housing development.
However, a survey by the National Association of Homebuilders found that the industry estimated the full slate of the “Liberation Day” tariffs, if they are allowed to go forward after a 90-day pause, would add nearly $10,000 in construction costs to each new average home built.
FEDERAL COURTS SHOULD BLOCK TRUMP’S ILLEGAL TARIFF REGIME
The 90-day interregnum does not preclude the 10% minimum universal tariffs, nor does the pause apply to the more than 100% tariffs applied to China. A tariff is indeed a tax borne directly by U.S. consumers, and the upward push on final prices is why the Fed has made clear it will not capitulate to Trump’s demands of a premature cut to the federal funds rate, which remains exactly two points above the headline CPI rate, as interest rates generally should be.
However, if Trump demonstrates the art of the deal and brokers dozens of zero-zero tariff deals to establish free trade with allies who would join us in icing out the Chinese from Western markets, Trump could continue to see the worst inflationary crisis in 40 years finally come to an end, and monetary tightening come down with it.