U.S. import prices unexpectedly fell in March, pulled down by decreasing costs for energy products, the latest indication that inflation was subsiding before President Donald Trump's sweeping tariffs came into effect.

Import prices dipped 0.1% last month, the first decline since September, after a downwardly revised 0.2% gain in February, the Labor Department's Bureau of Labor Statistics said on Tuesday. Economists polled by Reuters had forecast import prices, which exclude tariffs, would be unchanged following a previously reported 0.4% increase in February.

'COSTLY TRANSITION'

"There is likely to be a very painful and costly transition for the U.S. economy as Trump 2.0 tries to turn back the clock and go back to making things in America," said Christopher Rupkey, chief economist at FWDBONDS. "Import prices are not adding much to inflation for now, but the future outlook remains very much in doubt and not in a good way."

In the 12 months through March, import prices advanced 0.9% after increasing 1.6% the prior month. Data last week showed consumer and producer prices easing in March. The White House's import duties campaign has triggered a damaging trade war with China and plunged financial markets into turmoil. Investors are fearful of high inflation and tepid growth or even a recession.

Minutes of the Federal Reserve's March 18-19 meeting published last week showed policymakers were nearly unanimous that the economy faced risks of simultaneously higher inflation and slower growth, commonly referred to as stagflation.

The dollar rose against a basket of currencies after slumping in recent days on trade policy jitters. U.S. Treasury yields were higher.

CHEAPER FUELS

Financial markets expect the U.S. central bank to resume cutting interest rates in June after pausing in January, and reduce its policy rate by 100 basis points this year.

The Fed's benchmark overnight interest rate is currently in the 4.25%-4.50% range.

Imported fuel prices declined 2.3% in March after increasing 1.6% in February. Oil prices have decreased on worries that escalating trade tensions would weigh on global economic growth and therefore hurt demand for fuels.

Food prices edged up 0.1% after being unchanged in the prior month. Excluding fuels and food, import prices gained 0.1% for a second straight month. In the 12 months through March, the so-called core import prices rose 1.1%.

Further increases are likely as the dollar has weakened considerably against the currencies of the United States' main trade partners. The trade-weighted dollar is down by about 2.6% so far this year, with most of the depreciation in March and the first weeks of April as Trump doubled down on tariffs.

"The U.S. dollar is at its weakest point since last October, which will further increase the cost for producers, who purchase goods from abroad," said Matthew Martin, a senior economist at Oxford Economics.

Prices for imported capital goods rebounded 0.3% after slipping 0.1% in February. Prices for imported automotive vehicles, parts and engines fell 0.1%. Imported consumer goods prices, excluding automotives dropped 0.2%.

Prices for Chinese imports fell 0.2% after dipping 0.1% in February. They decreased 0.9% year-on-year. But imports from Japan cost 0.5% more and prices increased 1.7% from a year ago. The cost of goods imported from the European Union was unchanged. Prices for Canadian imports tumbled 1.5% while goods from Mexico were 0.3% cheaper.