Cooling CPI comes amid early-stage Trump tariffs and signals potential summer rebound
US inflation eased in April to its lowest annual pace since February 2021, even as newly implemented Trump-era tariffs raise questions about potential future price pressures.
According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) rose just 0.2% on a seasonally adjusted basis in April. This brought the year-over-year rate down to 2.3%, slightly below market expectations of 2.4% and marking a notable moderation from previous months.
The so-called “core” CPI, which excludes volatile food and energy prices, also rose 0.2% in April, holding steady at a 2.8% annual rate.
Shelter leads modest monthly rise
Shelter costs continued to drive inflation, accounting for over half of the monthly increase. The index for shelter rose 0.3% in April, with owners’ equivalent rent and primary rents both climbing at the same rate.
Medical care services rose 0.5%, driven by hospital and physician services, while motor vehicle insurance continued its upward trend with a 0.6% rise for the month. In contrast, airline fares fell sharply again, down 2.8% following a 5.3% drop in March.
Egg prices plunge, food at home declines
Grocery prices offered some relief. The food-at-home index fell 0.4%—its largest monthly drop since September 2020—with egg prices plunging 12.7% in April alone. Despite the sharp monthly decline, egg prices remain up 49.3% from a year ago due to earlier supply shocks.
Meanwhile, the broader food index was flat for the month, and prices for food away from home rose 0.4%.
Energy prices rebound slightly
After a 2.4% fall in March, the energy index rebounded with a 0.7% gain in April. Natural gas prices rose 3.7%, and electricity was up 0.8%, though gasoline prices fell slightly by 0.1% on a seasonally adjusted basis.
Tariff effects yet to fully emerge
The relatively mild inflation figures came even as President Donald Trump’s latest tariff program began to take effect. In his recent “liberation day” address, Trump announced across-the-board 10% duties on all imports, with additional reciprocal tariffs targeted at trading partners, including a now-paused 145% tariff on Chinese goods.
Economists warned the current CPI figures may not reflect the full impact of these policy changes. “Overall, there was no sign of the tariff impact in the April CPI,” said Aichi Amemiya, economist at Nomura. “We expect higher tariffs will likely exert upward pressures on core CPI starting in May.”
Markets and Fed watching closely
Markets were largely unmoved by the data, as expectations for Federal Reserve rate cuts continued to shift. Earlier in the year, traders priced in a likely rate cut in June. But following Trump’s tariff rollout, expectations have shifted toward a later first cut—possibly in September—and a more cautious outlook overall.
The Federal Reserve relies more heavily on the Personal Consumption Expenditures (PCE) price index, which last registered at 2.3% in March. Nonetheless, CPI trends influence market sentiment and help shape broader inflation expectations.
PNC chief economist Gus Faucher noted that while the April report was benign, tariff-related uncertainty could dampen growth and labor market strength in the coming months. PNC forecasts four quarter-point rate cuts in the second half of 2025, driven more by economic softness than by immediate inflation pressures.
Outlook: Temporary reprieve?
Analysts suggest April may represent a near-term trough for CPI. Ben Ayers of Nationwide warned that the index could climb above 3% later this year as tariff-related costs ripple through supply chains.
For now, consumers are enjoying a brief reprieve from years of high inflation. But with tariffs expanding and demand cooling in certain sectors—such as air travel and discretionary services—the economic landscape remains uncertain.
“The numbers were better than expected, but the shadows of policy-induced shocks are lengthening,” said Tyler Schipper, an economist at the University of St. Thomas. “This may be the calm before the next wave.”
