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Tariffs are expected to raise the cost of living, but Wednesday's report on inflation and spending will likely show little evidence of that.

The Bureau of Economic Analysis is expected to release the Personal Consumption Expenditures report on Wednesday. It will likely show that the cost of living stayed flat in March after rising 0.3% in February, according to the Bloomberg consensus forecast reported by Wells Fargo Securities. That would make for a 2.2% increase over the past 12 months, the lowest annual inflation rate since September.

The inflation slowdown is expected to echo a similar trend in the Consumer Price Index data released earlier this month. In that inflation measure, a drop in gas prices dragged down overall inflation.

Inflation Could Still Be Ahead

However, the inflation reprieve is likely to be short-lived.

Economists predict tariffs imposed by President Donald Trump in April could push up consumer prices, as merchants pass on the cost of the import taxes to consumers. Economists at RBC expect the inflation surge to show up in the data for May, which will be reported in June.

If Wednesday's report matches expectations, it would highlight the good shape the economy was in before Trump's trade wars shook things up. Not only was overall inflation slowing, but economists expect "core" inflation, which excludes volatile prices for food and energy, to have risen only 0.1% over the month.

That's down from 0.4% in February, making for a 2.6% increase over the year. It would be the lowest annual core inflation since March 2021. marking a milestone in the Federal Reserve's efforts to push it down to 2%.

The Fed bases its 2% inflation target on Core PCE inflation since food and energy prices can fluctuate for reasons that have little to do with lasting inflation trends. Cooling core inflation would typically be a promising sign for Federal Reserve officials and encourage central bankers to lower their benchmark interest rate .

However, Fed officials expect tariffs to push up costs and have hesitated to make any moves while waiting to see how Trump's trade wars will unfold.

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