Inflation barely moved in April, as the tariffs President Trump rolled out earlier in the month hadn’t yet filtered into consumer prices, according to the Commerce Department.
The Federal Reserve’s preferred gauge, the personal consumption expenditures (PCE) price index, ticked up just 0.1% for the month, pushing the annual inflation rate down to 2.1%—its lowest in more than two years and 0.1 percentage points below economists’ forecasts.
Excluding volatile food and energy costs, the core PCE increased 0.1% in April, with an annual rate of 2.5%, slightly below estimates.
Fed policymakers focus heavily on this core figure, viewing it as a clearer indicator of longer-term inflation trends.
Consumer spending showed signs of caution, growing only 0.2% after a robust 0.7% rise in March.
This restraint was reflected in the personal savings rate, which jumped to 4.9%, its highest level in nearly a year.
Meanwhile, personal income rose 0.8%, surpassing forecasts and providing some cushion amid slower spending.
Food prices fell 0.3%, while energy costs rose 0.5%. Shelter costs, one of the most persistent inflation components, increased 0.4%, continuing their steady upward trend.
Markets showed little reaction to the data. Stock futures drifted lower, and Treasury yields moved without clear direction.
Trump has been urging the Fed to lower interest rates as inflation edges near the central bank’s 2% target.
However, policymakers remain cautious, waiting to see how the tariffs reshape the economy.
Oliver Allen, senior economist at Pantheon Macroeconomics, said bigger increases in core goods inflation likely loom once the costs of the new tariffs are passed on.
He expects core inflation to peak between 3.0% and 3.5% later this year if tariffs remain in place.
Just days earlier, Trump met Fed Chair Jerome Powell face-to-face for the first time this term. The Fed emphasized that monetary policy decisions will be made free from political considerations, signaling steady hands amid White House pressure.
Trump’s tariffs—starting with a broad 10% on all imports—aim to address the U.S.’s record $140.5 billion trade deficit in March.
Steeper, selective tariffs followed, but recent moves have softened the stance, instituting a 90-day pause to negotiate with affected countries.
A court recently ruled these tariffs exceeded Trump’s authority and lacked a national security justification, though an appeals court granted a temporary stay.
Economists worry tariffs could ignite another round of inflation, yet history shows their impact is often limited.
Still, with labor market concerns rising, the Fed fears a return of stagflation—a troubling mix of stagnant growth and rising prices last seen in the 1980s.
For now, inflation’s steady pace offers a calm backdrop for businesses, even as tariffs loom on the horizon, ready to ripple through prices in the months ahead.
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