Inflation was slightly lower than expected in April as President Donald Trump’s tariffs just began hitting the slowing U.S. economy, according to a Labor Department report Tuesday.
The consumer price index, which measures the costs for a broad range of goods and services, rose a seasonally adjusted 0.2% for the month, putting the 12-month inflation rate at 2.3%, its lowest since February 2021, the Bureau of Labor Statistics said. The monthly reading was in line with the Dow Jones consensus estimate while the 12-month was a bit below the forecast for 2.4%.
Excluding volatile food and energy prices, the core CPI also increased 0.2% for the month, while the year-over-year level was 2.8%. The forecast was for 0.3% and 2.8%, respectively.
The monthly readings were a bit higher than in March though price increases remain well off their highs of three years ago.
Markets reacted little to the news, with stock futures pointing flat to slightly lower and Treasury yields mixed.
“”Good news on inflation, and we need it given inflation shocks from tariffs are on their way,” said Robert Frick, corporate economist at Navy Federal Credit Union. “Non-tariffed goods are still in the pipeline, and perhaps some importers have absorbed their tariff costs for now.”
“On its face, the numbers in the CPI report are good news for consumers: food prices being down, some air travel being slightly cheaper, things that people like to see in the economy,” said Tyler Schipper, associate professor in economics and data analysis at the University of St. Thomas in St. Paul, Minnesota. “Those tariffs are still out there, they’re still at levels that we have not seen in a very long time, and there are some good explanations for why we shouldn’t necessarily be seeing price increases yet.”
Among those reasons: There have been significant shifts in tariff policy, and some of the most aggressive duties were curtailed or paused; businesses front-loaded purchases, building up their pre-tariff inventory; and some costs from the initial waves of new tariffs might have been absorbed by retailers and manufacturers.
And as far as the inflation data is concerned, any tariff effects would likely first emerge in goods (where some categories did show price jumps); however, any increases there were offset by softer services inflation, including areas where weaker consumer demand might have weighed down prices.
“This may be the low point (for CPI) in 2025,” Ben Ayers, Nationwide senior economist, wrote in a note to investors on Tuesday. “As tariff costs increasingly flow into consumer prices, we expect a jump in the CPI this summer, pushing the annual reading back above 3%. Correspondingly, economic growth should be soft over the rest of the year as higher prices and economic concerns weigh on spending activity.”
And while tariff-related impacts were scant in Tuesday’s CPI data, not only were there some indications that price pressures may be building, but the report also showed signs of how massive economic uncertainty has weighed on consumers.
Shelter prices again were the main culprit in pushing up the inflation gauge. The category, which makes about one-third of the index weighting, increased 0.3% in April, accounting for more than half the overall move, according to the BLS.
Used vehicle prices saw their second straight drop, down 0.5%, while new vehicles were flat. Apparel costs also were off 0.2% though medical care services increased 0.5%. Health insurance increased 0.4% while motor vehicle insurance was up 0.6%.
Egg prices tumbled, falling 12.7%, though they were still up 49.3% from a year ago.
With the increase in CPI, real average hourly earnings were flat for the month and up 1.4% from a year ago.
While the April CPI figures were relatively tame, the Trump tariffs remain a wild card in the inflation picture, depending on where negotiations go between now and the summer.
READ ALSO: US and China agree to slash tariffs by 115% for 90 days
In his much-awaited “liberation day” announcement, Trump slapped 10% duties on all U.S. imports and said he intended to put additional “reciprocal” tariffs on trading partners. Recently, though, Trump has backed off his position, with the most dramatic development a 90-day stay on aggressive tariffs against China while the two sides enter further negotiations.
Economists figure that even with the easing of the 145% reciprocal tariffs against China, inflation numbers could perk up again in the summer months, though the degree to which that will happen is an open question. Trump left in place the across-the-board tariffs.
“Overall, there was no sign of the tariff impact in the April CPI. Although we expect higher tariffs will likely exert upward pressures on core CPI, starting in May, weakening of consumer demand and an inventory drawdown might mitigate the inflationary pressure,” Nomura economist Aichi Amemiya said in a note.
Markets expect the president’s softening position to lead to less of a chance of interest rate cuts this year. Traders had been expecting the Federal Reserve to start easing in June, with at least three total reductions likely this year.
Since the China developments, the market has pushed out the first cut to September, with just two likely this year as the central bank feels less pressure to support the economy and as inflation has held above the Fed’s 2% target now for more than four years.
The Fed relies more on the Commerce Department’s inflation gauge for policymaking, though the CPI figures into that index. The BLS on Thursday will release its April reading on producer prices, which is seen as more of a leading indicator on inflation.
Despite the good news overall, there were some signs of tariffs in the data.
The index for household furnishings and operations increased 1.0 per cent in April after standing still in March, the Labour Department said.
In a recent investor note, economists at Deutsche Bank had flagged that this data point would provide a good indication of how some “import-heavy categories” could be affected by tariffs.
But, they added, it was still “too early for tariffs to be evident in the aggregate numbers.”
The energy index — which fell sharply in March — increased 0.7 per cent in April, according to the Labor Department, spurred by a sharp rise in natural gas and electricity prices.
The gasoline index decreased 0.1 per cent over the month on a seasonally-adjusted basis, and by 11.8 per cent over the past 12 months.