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Consumers and home shoppers continue to get relief on inflation, but there’s a catch.
The Consumer Price Index (CPI) report from the U.S. Bureau of Labor Statistics fell in March to 2.4% year over year, down from 2.8% in February and below expectations. Even better, it fell by 0.1% relative to February.
The annual figure remains above the inflation target of 2%, which the Federal Reserve wants to see before lowering the federal funds rate. But inching closer fuels optimism that mortgage rates could come down.
However, President Donald Trump’s trade war rollercoaster has yet to be priced into inflation, and the added uncertainty will likely give the Fed pause as it plots a path forward.
“With consumers expressing concern about their job security, against the backdrop of an on-then-off again trade war, March inflation data were somewhat lower than expected, giving the Fed the opportunity to worry less about inflation,” said Realtor.com Chief Economist Danielle Hale in a statement.
“But I don’t expect to see a big shift in monetary policy expectations as a result of this one reading. Attention is likely to continue to focus on the details of trade announcements.”
Americans continue to experience a moderation in shelter costs, as the index for homeownership and rent rose 0.2% month over month and 4% compared to last year. It’s the lowest year-over-year gain since November 2021 at 3.8%.
Core inflation — which excludes volatile energy and food costs — fell to 2.8% year over year, the lowest since March 2021, before inflation began to skyrocket.
With inflation remaining on positive long-term trends, all eyes will be on April’s CPI report, which will likely price in some of the tariff tit-for-tat that’s rocked the stock market and forced layoffs in select industries.
It’s hard to know what to expect given the seemingly impulsive nature of Trump’s tariff strategy. He’s twice paused 25% tariffs on Mexico and Canada, and Wednesday he paused most of the global tariffs that had been in effect for mere hours.
At the same time, he continues to raise levies on China, which are now 125%. Tariffs on China are the most impactful both for the broader economy and for homebuilders.
According to data from the National Association of Home Builders (NAHB), China provides 27% of all construction material imports, and the 25% tariff on steel and aluminum imports remains in effect.
A John Burns Real Estate Consulting (JBREC) study conducted prior to Wednesday’s pause and China tariff hike estimated that the tariffs will add $12,800 to the cost of building a home.
Despite the pause, companies in some industries have already raised prices, laid off workers or both. How this plays out in aggregate inflation is anyone’s guess.
“Amid the tariff uncertainty, today’s CPI report provided some positive signs for inflation,” said First American Senior Economist Sam Williamson in a statement. “While this is encouraging for the Federal Reserve’s inflation fight, rate cuts remain unlikely as policymakers wait to see the effects of recent tariff changes reflected in future data.”
