The annual inflation rate in the United States eased for a second consecutive month to 2.4% in March 2025, the lowest level since September, down from 2.8% in February, and below the consensus forecast of 2.6%.
US inflation rate slows more than expected
The slowdown in inflation was largely driven by a significant drop in energy prices, with gasoline prices falling sharply by 9.8% compared to a smaller 3.1% decline in February, and fuel oil prices dropping by 7.6% versus 5.1% the previous month. Conversely, natural gas prices surged by 9.4%, a sharp increase compared to February’s 6% rise, reflecting continued volatility in the energy market, particularly with supply and demand imbalances. This mixed picture in energy prices reflects broader trends in the economy, with some segments benefiting from falling costs, while others, like natural gas, are experiencing price pressures.
Inflation also slowed in several other key categories
Inflation also slowed in several other key categories, including shelter, which rose 4.0% year-on-year in March, slightly easing from the 4.2% increase in February. The cost of used cars and trucks rose by 0.6%, a deceleration from February’s 0.8% increase, while transportation costs fell significantly, slowing to a 3.1% rise from 6% in the previous month. On the other hand, food prices accelerated, climbing by 3% from a 2.6% increase in February, reflecting ongoing pressure from supply chain disruptions and higher costs in the agriculture sector.
On a monthly basis, the Consumer Price Index (CPI) decreased by 0.1%, marking the first monthly drop since May 2020. This decrease came as a surprise, with markets having expected a slight increase of 0.1%. The drop in the overall CPI was largely due to the 2.4% decline in the energy index, as a 6.3% decrease in gasoline prices more than offset modest gains in electricity (0.9%) and natural gas (3.6%). This suggests that while energy prices are still volatile, overall inflationary pressures may be easing due to the sharp declines in fuel costs.
Core inflation figures
Meanwhile, core inflation, which excludes the volatile food and energy components, also showed signs of easing, falling to 2.8% in March 2025, the lowest level since March 2021, and below the market expectation of 3%. This slowdown was driven by a deceleration in several key categories: shelter, which saw a modest decrease in its growth rate from 4.2% to 4.0%, and transportation services, which experienced a sharp slowdown from 6.0% in February to 3.1%. The prices of medical care commodities and apparel also showed notable moderation, with medical care rising by just 1.0% compared to 2.3% in February, and apparel prices increasing by only 0.3%, down from 0.6%.
On a monthly basis, core CPI increased by just 0.1% in March, following a 0.2% rise in February and falling short of the expected 0.3% increase. This suggests that underlying inflationary pressures are moderating, which could offer some relief to consumers and policymakers alike. The slowdown in core inflation is particularly noteworthy, as it indicates that inflationary trends, which had been concerning earlier in 2024, may be gradually stabilizing.
Broader implications for the U.S. economy
The easing inflation trend has broader implications for the U.S. economy. For consumers, the decline in energy prices and moderation in core inflation could provide some relief, particularly for household budgets strained by rising living costs in the past few years. For policymakers, particularly the Federal Reserve, the data may influence future monetary policy decisions. The easing inflation rate could give the Fed more flexibility in adjusting interest rates, particularly if inflation continues to moderate in the coming months. Additionally, the slower price increases in sectors like medical care and transportation services may indicate that inflationary pressures are becoming more contained across the broader economy.
Overall, while inflation remains above the Fed’s 2% target, the recent data shows signs of moderation, suggesting that the worst of the inflation surge may be behind. However, continued vigilance will be required, particularly in sectors like food and energy, where prices remain volatile, and the ongoing global supply chain challenges may still exert upward pressure in the near term.
