April’s Consumer Price Index (CPI) showed a surprise slowdown in inflation, rising just 0.2% month-over-month and 2.3% annually, beating expectations and marking the lowest reading since February 2021, according to the Bureau of Labor Statistics.
Economists had projected a 0.3% increase and a steady 2.4% annual rate.
Tyler Schipper, economist at University of St. Thomas: “It’s good news for now — food prices are down, travel is cheaper — but the tariffs are still out there, and we haven’t felt the full impact yet.”
Goods Prices Begin to React to Tariffs
While food and energy saw relief — including a 12.7% drop in egg prices — underlying goods categories are starting to feel tariff pressure.
- Furniture & appliances: +1%
- Computers & phones: +0.3% (after 12 months of declines)
- Goods excluding food, energy, autos: +0.2%, a sharp turn from flat pricing
Pantheon Macro’s Samuel Tombs: “We’re now seeing the first clear signs of upward pressure from tariffs in the goods CPI.”
Services Still Weak as Confidence Falls
The services sector stayed soft, with notable drops in discretionary spending:
- Air travel prices: -2.8% in April
- Google searches for ‘flights’ hit a low, signaling weak demand into May
This weakness in services helped balance out growing goods inflation — but that balance may not last.
What This Means for the Fed
Despite the cooler CPI, economists warn this is likely not a trend, but a brief reprieve.
Ben Ayers, Nationwide: “This may be the low point. We expect CPI to jump this summer and move back above 3% as tariff costs filter through.”
The Federal Reserve, which targets a 2% rate using a different index (PCE), is expected to stay cautious.
Gus Faucher, PNC Financial: “Even as inflation reaccelerates, the Fed will prioritize the labor market. We’re forecasting 4 rate cuts in the second half of 2025.”
Looking Ahead
- PPI data out Thursday will give further clues about wholesale inflation trends
- Tariff effects are expected to become more visible in May–June
- With Trump’s sweeping trade, employment, and fiscal moves still unfolding, consumer prices may be on the edge of a new uptrend
April’s inflation report brings temporary relief — but tariffs are just beginning to bite. Expect more volatility this summer as CPI likely heads back above 3%, and the Fed walks a tightrope between inflation control and labor market protection.
Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.
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