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U.S. inflation cooled slightly in April in what economists warn could be a final lull before a likely surge in consumer prices stemming from President Trump’s trade war.
The better-than-expected report is welcome news for the Trump administration and the Federal Reserve, which has been trying to wrestle inflation down to its 2 percent target since the pandemic. But policymakers and economists do not expect the reprieve to last, forecasting prices to begin accelerating in the coming months as import taxes start to bite.
The Consumer Price Index rose 2.3 percent from a year earlier, the slowest annual pace since early 2021, data released by the Bureau of Labor Statistics showed on Tuesday. Over the course of the month, prices rose 0.2 percent, an acceleration compared with March’s 0.1 percent decline.
A closely watched measure of underlying inflation, which strips out volatile food and energy items, climbed 2.8 percent compared with the same time last year, in line with March’s year-over-year rise. On a monthly basis, prices rose 0.2 percent, slightly outpacing the previous month’s 0.1 percent increase.
“It’s like opening up a time capsule,” said Steven Blitz, chief U.S. economist at GlobalData TS Lombard of the latest inflation report. “You’re seeing this wonderful, detailed picture of what was that tells you nothing about what’s going to be.”
Egg prices fell nearly 13 percent in April, which helped to pull down food-related costs by 0.1 percent for the month. Gas prices were down, too, falling 0.1 percent.
The overall tariff impact was “muted,” said Stephen Brown, an economist at Capital Economics. Core goods rose just 0.1 percent as clothing costs dropped 0.2 percent. Used car and truck prices fell 0.5 percent, while new vehicle prices were flat.
Furniture costs rose, but only slightly, alongside prices for personal care services and motor vehicle insurance. In a sign that consumers may be starting to pull back on spending, airfares dropped 2.8 percent, extending a 5.3 percent drop in March.
The S&P 500 turned positive for the year following the latest inflation report, recouping steep losses caused by Mr. Trump’s trade war.
The data come on the heels of a significant U-turn from the Trump administration on its tariffs with China. On Monday, officials in Washington and Beijing agreed to temporarily reduce what had been punishing, tit-for-tat tariffs for 90 days.
The United States agreed to drop its tariffs on Chinese goods to 30 percent from the minimum 145 percent level that has been in place since last month. China reduced its tariff on American goods to 10 percent from 125 percent.
While the pause reduced the odds of a much more severe economic shock, economists and policymakers — including those at the Fed — have warned that the scope and scale of the tariffs that Mr. Trump is likely to keep in place will eventually stoke inflation while simultaneously denting growth.
“It does reduce the near-term peak for inflation, but it doesn’t change the direction of travel,” Stephen Juneau, an economist at Bank of America, said of the trade truce with China. He forecasts that inflation will rise to as high 3.5 percent by the end of the year, as measured by the core personal consumption expenditures price index. The Fed’s preferred gauge stood at 2.6 percent as of the latest data in March.
A 10 percent tariff is still in place against nearly all of America’s trading partners and combined with the reduced duties on China, economists estimate that consumers still face an effective tariff rate of around 15 percent.
The full effects of these levies will take time to show up in the economic data, with the bulk of related price increases potentially not materializing until the summer.
There are many reasons for the delay. In anticipation of import taxes, many companies raced to build up inventories before the tariffs kicked in to avoid the higher costs. Companies — some of which have already been reluctant to raise prices in fear of driving away cash-strapped consumers — will be able to first draw down those stockpiles without having to sell new products at higher prices. Tariffs on intermediate goods, which are used to produce other products, also pass through to consumer items slowly.
What is not yet clear is if tariffs will cause just a one-time increase in prices or feed into a more persistent inflation problem. The Fed is worried about the latter scenario and has made clear that its priority for the time being is to ensure that expectations about inflation over a longer time horizon do not shift significantly higher.
The fear is that if consumers expect higher prices and ultimately demand higher wages to compensate for those increased costs, that could set in motion a period of significantly higher inflation that ultimately is harder for the Fed to root out.
The central bank has put interest rate cuts on hold for the time being until they gain more clarity about the economic impact of Mr. Trump’s policies. The bar to lower borrowing costs is high, suggesting officials will wait to see substantive signs that the labor market is in jeopardy before taking action.
Before tariffs between the U.S. and China were scaled back, economists had worried that the economy was headed for a serious downturn, which may have prompted the central bank to reduce borrowing costs as early as this summer. But those expectations have now been scaled back as the economic outlook looks less bad than before.
Many Wall Street banks now expect the Fed to be on hold until December or later. Mr. Juneau at Bank of America said he expects the Fed wait to lower borrowing costs until the second half of next year because lingering concerns about inflation will force them to move gradually.
“That leads the Fed to be more reactive than proactive,” he said.