Consumer prices climbed last month at the slowest pace since February 2021, as the inflationary effects of President Donald Trump's tariffs had yet to hit Americans' wallets.
The Consumer Price Index, which tracks a variety of costs throughout the economy, rose 2.3% year on year in April, the Bureau of Labor Statistics reported Tuesday, down from 2.4% in March.
Analysts said the slower price growth may still not prompt the Federal Reserve, which is tasked with managing inflation, from lowering interest rates. Trump has repeatedly called for the central bank to do so, bashing its decision last week to hold rates steady.
The latest inflation reading is "likely a welcome reprieve for the Fed; however, the larger tariff-related price adjustments are likely to come over the next few months," Goldman Sachs analysts said in a note to clients Tuesday. "Consequently, we still anticipate them remaining on the sidelines in the near term."
Even as the pace of price growth has slowed, consumers now report unprecedented levels of uncertainty amid fast-changing headlines about how Trump’s tariffs will affect the economy.
“Tariffs are now on top of consumers’ minds, with mentions of tariffs reaching an all-time high,” the Conference Board, which releases a closely watched monthly consumer-sentiment survey, said late last month. “Consumers explicitly mentioned concerns about tariffs increasing prices and having negative impacts on the economy.”
The White House's back-and-forth tariff announcements are likely to have a whipsawing effect on inflation readings for months to come, said Seema Shah, chief strategist at Principal Asset Management financial group.
"A clear read on the inflation trend won’t be visible for several months yet," she wrote in a note Tuesday. "This prolonged inflation uncertainty likely implies a prolonged Fed pause."
Stock markets appeared to shrug off the inflation report, with the three major U.S. indexes largely flat in Tuesday morning trading.
Trump has asserted that there is "virtually no inflation," and some major consumer categories are indeed seeing price declines. Today, regular unleaded fuel costs about $3.16 per gallon, down from $3.62 a year ago, according to AAA. Overall energy costs are also slightly lower, government data show, though some analysts have warned the decreases could reflect slower energy demand — a trend that could reverse during the summer months.
Grocery price growth also saw its sharpest slowdown since 2023 last month, largely driven by falling egg costs. Prices for that staple have settled at a much higher level than just months ago, however, and economists expect Trump's trade war to ripple across supermarket shelves in sometimes hard-to-predict ways over the coming months.
Inflation, at any rate, is still hotter than many households would like and has hovered just above the Fed's 2% target level for nearly the past year. The “core” inflation measure, which strips out food and energy, was up 2.8% in April, the same as in March.
Housing continues to be a major culprit: Shelter costs are one-third of the CPI report, and they've have continued to rise, although not as quickly as during the Biden administration. While 12-month rent growth has slowed, at 4% it is about equal to pre-pandemic highs. The BLS’ official measure of overall housing costs is also at 4%, higher than pre-Covid levels.
In general, uncertainty continues to reign from Main Street shops to executive boardrooms, spanning fireworks distributors, border towns and travel agencies.
“It is currently hard to judge the underlying pace of growth of the U.S. economy,” Federal Reserve Governor Adriana Kugler said in remarks Monday, because Trump’s tariffs continue to distort economic data.
Her comments were prepared before the 90-day U.S.-China tariff pause unveiled Monday, but even the reduced 30% effective import tax on Chinese goods is still expected to put pressure on what Americans pay for many items. The Yale Budget Lab estimated Monday that consumers will continue to face an average effective tariff of 17.8%, the highest since 1934.
“Given these expected price increases, real incomes will fall, and operating costs will rise, which will lead consumers to demand fewer final goods and services and firms to demand fewer inputs,” Kugler said. “Ultimately, I see the U.S. as likely to experience lower growth and higher inflation.”
