Gasoline drop caused calm before the all-out tariff blitz in inflation readings

Trend watch

Air passenger counts were uncharacteristically down for a third consecutive week, decreasing 0.1% week over week to 17.3 million. As we highlighted here several weeks ago, this year’s spring break travel is more spread out over March and April compared to 2024. In fact, the second largest week will be in the coming week. Nonetheless, the spring break calendar shift explains some, but not all, of travel weakness.

Although we don’t have the complete data yet, the source of the recent weakness may be Canadian. There was a 9.7% decline in international arrivals (from all countries) to the United States in March by non-U.S. citizens, according to the International Trade Administration. Last year, nearly half of all international arrivals were from Canada, mostly for vacations. We show the top 10 countries for U.S. arrivals on slide 7. 

Our take

The two main inflation gauges – for consumer and wholesale prices – showed that prices dipped in March. Both were primarily driven by gasoline prices, which dropped 6.3% from the prior month. That is, of course, also before the all-out blitz in tariffs. As such, retail gasoline prices have surged nearly 20% nationwide since mid-March, according to the American Automobile Association.

Canada and Mexico are the top sources of U.S. crude oil imports, together comprising about one-quarter of the oil U.S. refiners process into fuels. That is especially true in the upper Midwest.

Furthermore, we have started to see tariffs hitting other prices. Within the  Producer Price Index data, prices for steel milled products rose 7.1% in April. The 25% steel & aluminum tariffs went in effect on March 12, 2025.

Despite the headlines heralding a pause in the announced tariffs, the average effective tariff coming into the United States is now 27%, according to the Yale Budget Lab, up from 2.4% at the start of the year.

While the tariff pause allows for time to negotiate, it does little to provide clarity for businesses. In fact, uncertainty is exacerbated by tariffs being a moving target, stirring further uncertainty. Alas, the tariff pause reinforces the notion that businesses should remain in “wait & see” mode, which isn’t pro-growth for the economy.

We’d caution that some of the strength in economic data could be a bit of a mirage, whereby tariff front running has pulled forward demand for imported goods but will eventually hit an air pocket once the pre-tariff supply is exhausted and prices begin to accurately reflect the new tariff regime.

Ultimately, this uncertainty casts a long shadow over the economy, clouding decision making for businesses and consumers alike. While a recession isn’t our base case, time is not on the economy’s side. The longer this saga takes to play out, the more it gouges into economic growth. 

Bottom line

The U.S. economy has been resilient, but it’s in a holding pattern awaiting resolution on the tariffs. The longer this uncertainty lingers the more intense the headwind for the economy becomes in the near term. That has contributed to the recent bouts of volatility in financial markets, which we expect will continue for the foreseeable future.