April Inflation Slows to 2.3% as Tariff Impact Looms, Fed Rate Cuts Now Expected in Fall

In April, U.S. inflation came in slightly lower than expected, as the tariffs imposed by President Donald Trump began to affect the economy. According to the Labor Department’s report, the consumer price index (CPI) rose by 0.2% for the month, bringing the annual inflation rate down to 2.3%, its lowest level since February 2021. This figure was in line with analysts’ expectations, though it was slightly lower than the forecasted 2.4% year-over-year increase. The core CPI, which excludes volatile food and energy prices, also rose by 0.2% for the month, with the yearly increase holding steady at 2.8%.

April Inflation Shows Mild Increase, Driven by Shelter Prices and Mixed Market Response

The inflation data came in just above the figures from March, but overall, the price increases remained far lower than the highs seen in recent years. The markets had a muted reaction to the news, with stock futures largely unchanged and Treasury yields mixed. Economists noted that while the April figures showed a mild inflationary environment, the full effects of tariffs were yet to be seen, especially as non-tariffed goods were still working their way through the supply chain. Robert Frick, a corporate economist, suggested that importers may have absorbed the costs of some tariffs, helping to temper the immediate impact.

One of the key factors pushing inflation higher in April was the increase in shelter prices, which make up about one-third of the CPI weighting. Shelter costs rose by 0.3% for the month, accounting for more than half of the overall CPI increase. Meanwhile, energy prices bounced back after a significant drop in March, increasing by 0.7%, while food prices saw a small decline of 0.1%. Used vehicle prices continued their downward trend, falling by 0.5%, and apparel costs dropped by 0.2%. However, some sectors saw price increases, with medical care services rising by 0.5% and motor vehicle insurance increasing by 0.6%.

Economists Warn of Rising Inflation Due to Tariffs, Fed Adjusts Rate Cut Expectations

Although the inflation numbers for April remained relatively mild, economists warned that the full effects of President Trump’s tariffs could soon be felt. Trump had imposed a 10% tariff on all U.S. imports, signaling potential price increases in the future. However, the president recently softened his stance, opting for a 90-day delay on aggressive tariffs against China while negotiations continue.

While the immediate effect of the tariffs wasn’t apparent in the April data, economists predict that inflation could rise in the summer months as higher tariffs start to impact core CPI. Still, some believe that weakening consumer demand and inventory reductions may help offset these pressures.

In response to the ongoing inflation trends, the Federal Reserve has faced questions about whether it will cut interest rates this year. Initially, traders had expected the central bank to reduce rates in June, with a total of three cuts likely for the year. However, the easing of tariff pressures has led the market to push the first rate cut to September, with only two cuts now anticipated.

With inflation remaining above the Fed’s 2% target for over four years, the central bank appears less likely to take immediate action, though inflation data from the Commerce Department, including the April producer price index (PPI), will provide further guidance for policymakers.