U.S. inflation cooled slightly in April, as the impact of President Donald Trump’s tariffs began to affect the economy, according to a report from the Labor Department on Tuesday.
The consumer price index (CPI), which tracks the cost of a broad range of goods and services, rose by a modest 0.2% in April, bringing the 12-month inflation rate to 2.3%. This is the lowest inflation level since February 2021.
While the monthly rise met expectations, the annual increase came in just below the forecasted 2.4%.
Excluding volatile food and energy prices, the core CPI also increased by 0.2% for the month, with a year-over-year increase of 2.8%.
These numbers were in line with projections, but markets showed little reaction, with stock futures flat 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.”
Rising shelter prices were the main contributor to the inflation increase, accounting for more than half of the overall rise.
Shelter, which makes up about a third of the CPI weighting, increased by 0.3% in April. Meanwhile, energy prices, which had dropped by 2.4% in March, rebounded with a 0.7% gain, while food prices declined by 0.1%.
Used vehicle prices dropped 0.5% for the second consecutive month, while new vehicle prices remained unchanged. Apparel costs fell by 0.2%, but medical care services saw a 0.5% increase.
Health insurance rose by 0.4%, and motor vehicle insurance climbed 0.6%. Notably, egg prices fell 12.7%, though they were still up by 49.3% from a year ago.
Despite the slight increase in CPI, real average hourly earnings remained flat for the month, though they were up 1.4% compared to a year ago.
The U.S. inflation landscape remains uncertain due to ongoing tariff negotiations. Trump’s recent decision to implement a 10% duty on all U.S. imports, followed by a temporary freeze on tariffs against China, adds complexity to the situation.
Economists predict that tariffs may start to push inflation higher in the coming months, though the full impact remains unclear.
“The tariff effect was absent in the April CPI. However, we expect that higher tariffs will likely exert upward pressures on the core CPI starting in May,” said Aichi Amemiya, economist at Nomura.
The ongoing uncertainty surrounding tariffs has also shifted market expectations for Federal Reserve rate cuts. Initially, traders expected the Fed to reduce interest rates by June, but now they anticipate only two cuts by year’s end, as inflation holds above the Fed’s 2% target.
As the situation unfolds, all eyes are on the upcoming producer price report from the Bureau of Labor Statistics, due Thursday, which will offer further insights into inflationary pressures.
The impact of tariffs on inflation is significant, especially for businesses that depend on imports, and the outcome of these negotiations could have a lasting effect on business costs and pricing strategies.
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