US inflation cooled slightly in April, as economists warned against a surge in consumer prices caused by President Trump's trade war.
The better than expected report is welcome news for the Trump administration and the Federal Reserve, seeking to regain inflation to its 2% target since the pandemic. However, policymakers and economists do not predict that once grace taxes begin to be bitten, the grace that is expected to start to accelerate in the coming months will continue.
The consumer price index has risen 2.3% from a year ago, the slowest annual pace since early 2021, data released by the Bureau of Labor Statistics was shown Tuesday. Throughout the month, prices rose 0.2%, accelerating compared to a 0.1% decline in March.
The meticulous measurement of underlying inflation, which removes volatile foods and energy items, rose 2.8% year-on-year in March last year compared to the same time. Prices rose 0.2% each month, slightly outpacing the previous month's 0.1% increase.
Egg prices fell nearly 13% in April, helping to cut food-related costs by 0.1% that month. Gas prices also fell, falling 0.1%. Prices for second-hand cars and trucks fell 0.5%, while prices for new cars were higher. Airfares fell 2.8%, falling 5.3% in March.
However, furniture costs have risen in addition to personal care services and auto insurance.
The data comes shortly after a key U-turn from the Trump administration on tariffs with China. On Monday, officials in Washington and Beijing agreed to temporarily reduce the duties on Tatt, the punishment for 90 days.
The US has agreed to reduce tariffs on Chinese products from the minimum 145% level that it has been in place since last month to 30%. China has reduced tariffs on American goods from 125% to 10%.
The suspension reduced the chances of a much more severe economic shock, but economists and policymakers have warned that the range and scale of tariffs Trump is likely to sustain will ultimately blow away inflation while halting growth.
A 10% tariff is still in force on almost every US trading partner, and economists combined with China's cuts in duties estimate that consumers are still facing an effective tariff rate of around 15%.
The full impact of these taxes takes time to economic data and the majority of associated price increases may not be realized until summer.
There are many reasons for delays. In anticipation of import taxes, many companies competed to build inventory before tariffs began to avoid higher costs. Companies – some of them are reluctant to raise prices for fear of driving away cash-bound consumers – can first lower their stockpiles without selling new products at a higher price. The tariffs on intermediate products used in the production of other products also slowly pass through consumer items.
What's not yet clear is whether tariffs will cause a one-off rise in prices or supply more sustained inflation issues. The Fed is concerned about the latter scenario, making it clear that the immediate priority is to ensure that expectations for inflation over longer periods do not change significantly higher.
The fear is that if consumers expect higher prices and ultimately demand higher wages to compensate for those costs, it could ultimately move into a period of significantly higher inflation that is difficult for the Fed to eradicate.
The central bank has pending interest rate cuts for the time being until it becomes clearer about the economic impact of Trump's policies. Bars to reduce borrowing costs are high, suggesting officials will wait to see substantial signs that the labour market is at risk before taking action.
