NEW YORK (Agencies): U.S. consumer inflation cooled slightly in April, according to the official data published Tuesday, but is likely to pick up in the coming months as President Donald Trump’s sweeping tariffs came into force, boosting the costs of imported goods.
The data covers the period since the introduction of the new levies against most countries – including steep duties on China – which spooked financial markets and raised fears of a spike in prices.
Despite these fears, the consumer price index (CPI) eased to 2.3% in April from a year ago, a tick below the 2.4% figure recorded in March, the Labor Department said in a statement.
This was the smallest 12-month increase since February 2021, and was slightly lower than the median estimate from surveys of economists conducted by Dow Jones Newswires and The Wall Street Journal (WSJ).
Inflation picked up to 0.2% from a month earlier, slightly below expectations, with “more than half” of the increase due to a 0.3% rise in shelter costs, according to the Labor Department.
Excluding volatile food and energy costs, inflation increased 0.2% from a month earlier and by 2.8% over the past 12 months.
The data likely only captures tariffs, including a doubling of fentanyl-related taxes on all Chinese imports to 20% and a 25% levy on imported cars and light trucks, imposed before Trump’s April 2 “Liberation Day” announcement.
While Trump in April paused for 90 days most of his country-specific tariffs, a 10% blanket duty on almost all imports remained in place. Economists said they expected the hit from the tariffs on prices to start showing up significantly beginning with May’s CPI report.
The U.S. and China took a major step towards de-escalating their trade war over the weekend, with Washington agreeing to slash duties on Chinese goods to 30% for the next 90 days. Tariffs on U.S. goods imported into China would decline to 10% from 125%.
Economists still expect inflation to rise this year because of tariffs, but probably not as sharply as they had anticipated before the 90-day truce between the world’s two largest economies, allowing the Federal Reserve (Fed) to maintain its wait-and-see stance. They also see the easing of trade tensions helping the U.S. economy to avert a recession, though growth was likely to be sluggish this year.
“Inflation will likely rise to a lesser degree, peaking at around 3.4% year-over-year in the fourth quarter this year instead of our prior forecast of 4%,” said Kathy Bostjancic, chief economist at Nationwide. “Economic growth still slows since tariff rates will be higher than before President Trump took office.”
“And just like that, the markets’ twin fears – a tariff-induced recession and sticky inflation – have been greatly assuaged,” Northlight Asset Management chief investment officer Chris Zaccarelli said in a statement shared with Agence-France Presse (AFP).
“Fears of slowing growth and a recession caused by punitive tariffs drove markets lower in the first week of April,” he said. “But they’ve rebounded on the heels of a tariff pause and a Chinese trade breakthrough, and now a better-than-expected inflation report removes the last big overhang for the market.”
The Fed has a 2% inflation target. U.S. duties are looming on pharmaceutical products and semiconductors. Trump sees tariffs as a tool to raise revenue to offset his promised tax cuts and to revive a long-declining U.S. industrial base.
The Fed last week kept its benchmark overnight interest rate unchanged in the 4.25%-4.50% range. Financial markets expect the central bank to resume its policy easing in September.
Some signs of tariffs
Despite the good news overall, there were some signs of tariffs in the data.
The index for household furnishings and operations increased 1.0% in April after standing still in March, the Labor Department said.
In a recent investor note, economists at Deutsche Bank had flagged that this data point would provide a good indication of how some “import-heavy categories” could be affected by tariffs.
But, they added, it was still “too early for tariffs to be evident in the aggregate numbers.”
The energy index – which fell sharply in March – increased 0.7% in April, spurred by a sharp rise in natural gas and electricity prices.
The gasoline index decreased 0.1% over the month on a seasonally-adjusted basis, and by 11.8% over the past 12 months.
