In April, inflation registered a modest decline that fell short of expectations, coinciding with the initial impacts of President Donald Trump’s tariffs on the flagging U.S. economy, according to a report from the Labor Department released Tuesday.
The consumer price index (CPI), which tracks the price movements of a wide array of goods and services, recorded a seasonally adjusted increase of 0.2% for the month. This brought the year-over-year inflation rate to 2.3%, the lowest level since February 2021, as reported by the Bureau of Labor Statistics. While the monthly figure aligned with Dow Jones estimates, the annual rate slightly missed expectations of 2.4%.
When stripping away the more unstable food and energy prices, the core CPI also rose by 0.2% in April, with an annual increase of 2.8%. This figure was consistent with the anticipated annual growth, although expectations for the monthly rise were set at 0.3%.
The April numbers reflected slightly higher monthly readings compared to March, yet overall price increases remain significantly lower than the peaks seen three years ago.
Market reactions to the report were generally muted, with stock futures reflecting little change and Treasury yields showing mixed trends.
Housing costs were a primary factor in driving the inflation metrics upward. This category, which constitutes about one-third of the overall index, increased by 0.3% in April, contributing to more than half of the total inflationary movement, according to the BLS.
Used vehicle prices experienced their second consecutive decline, decreasing by 0.5%, while the prices for new vehicles remained unchanged. Additionally, apparel costs slipped by 0.2%, yet medical care services recorded a rise of 0.5%. Health insurance costs increased by 0.4% and motor vehicle insurance also went up by 0.6%.
Egg prices plummeted by 12.7%, although they remain up 49.3% compared to the same time last year.
While the April CPI data seemed relatively stable, the ongoing Trump tariffs introduce uncertainty into the inflation landscape, particularly as negotiations progress through the summer.
During his highly anticipated “liberation day” address, Trump introduced 10% tariffs on all U.S. imports and indicated plans for additional “reciprocal” tariffs against trading partners. However, he has recently softened his stance, notably postponing the aggressive tariffs against China by 90 days to facilitate further discussions.
Market expectations suggest that this pivot may decrease the likelihood of interest rate cuts occurring this year. Initial speculations indicated the Federal Reserve might begin easing in June, with expectations of at least three cuts throughout the year.
Following the latest developments regarding China, market analysts have shifted their projections, now forecasting the first rate cut could be pushed to September with only two reductions anticipated for the year. The Fed appears to be feeling less pressure to support an economy that has seen inflation remain above its 2% target for over four years.
While the Federal Reserve relies on the Commerce Department’s inflation index for decision-making, the CPI remains a component of that measure. The BLS is scheduled to release the April producer price index on Thursday, which is regarded as a more predictive measure of inflation.
