Lower food prices curb US consumer inflation in April

The price increase reported by the Labor Department on Tuesday was below economists' expectations and showed little impact from President Donald Trump's massive import tariffs, which economists expect to become apparent by the middle of this year.

The data suggest price pressures were easing ahead of Trump's chaotic tariff policy and have not changed economists' view that the Federal Reserve will continue to pause its interest rate-cutting cycle through the end of the summer.

Although the US and CHINA took a significant step toward de-escalating their trade war last weekend by agreeing to a 90-day ceasefire, the 10% tariff on almost all imports remains in place. Sectoral tariffs also continue to be levied.

"Improvements in global trade will provide some clarity on the future path of inflation," said Geoffrey Roach, chief economist at LPL Financial. "However, uncertainty about what might happen after these temporary trade agreements complicates the Fed's task, as stagflation remains a risk. If the fog doesn't clear, the Fed may not be able to adjust policy in June."

The consumer price index rose 0.2% last month after falling 0.1% in March, marking the first decline since May 2020, the Labor Department's Bureau of Labor Statistics reported. Economists surveyedREUTERS forecast a 0.3% rise in the CPI. Housing, which includes rent, rose 0.3%, accounting for more than half of the CPI increase.

This jump, following a 0.2% increase in March, was partially offset by a 0.4% increase in March. Grocery store prices fell 0.4%, the largest drop since September 2020, driven by a 12.7% drop in egg prices, the largest since 1984.

Egg prices , which have risen sharply over the past year and were cited as a contributing factor to voter discontent during the last presidential election, have risen 49.3% year-over-year. Fruit and vegetable prices fell last month, as did those of cereals and baked goods.

However, prices for soft drinks increased by 0.7%.

Gasoline prices fell 0.1%, even though consumers faced higher costs for natural gas and electricity.

Over the 12 months through April, the consumer price index rose 2.3%. This was the smallest increase since February 2021, following a 2.4% rise in March. There was little indication that 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 "Liberation Day" announcement on April 2, had increased prices. Tariffs for individual countries were postponed until July.

Businesses increased inventories in the first quarter ahead of the tariffs, which may explain the muted price increases.

"With the economy holding about 3.7 months of sales in inventory, we expect the impact of tariffs on prices to begin to show by mid-year," said Conrad DeQuadros, senior economic adviser at Brean Capital.

Tariffs are expected to raise prices

The Trump administration has agreed to reduce tariffs on Chinese goods to 30% for the next 90 days. Tariffs on American goods imported into China will be reduced to 10% from 125%.

However, the Yale Budget Lab stated that this year's tariffs imply a 1.7% short-term increase in consumer prices in the absence of a policy response from the U.S. central bank, equivalent to a loss of purchasing power of $2,800 per household. Consumer inflation expectations have also risen sharply.

Financial markets continued to expect the Federal Reserve to resume rate cuts in September. Last week, the central bank kept its benchmark overnight interest rate unchanged in the 4.25%-4.50% range.

Stocks on Wall Street were mostly higher. The DOLLAR fell against a basket of currencies. U.S. Treasury yields were slightly higher.

Excluding volatile food and energy, the CPI rose 0.2% last month after rising 0.1% in March. So-called core CPI inflation was boosted by higher housing costs, which reflected a 0.4% increase in equivalent owner-occupier rents. This more than offset a 0.1% decline in hotel and motel room prices.

The core consumer price index rose 2.8% year-on-year in April, matching the increase in March. Based on the CPI data, economists estimate that the core personal consumption expenditures (PCE) price index rose 0.2% in April after remaining unchanged in March. This would keep the annual growth rate of core PCE inflation at 2.6% in April. Producer price data for April, due Thursday, could impact these estimates.

"Even with the recent agreement between the Trump administration and China to reduce the most onerous import tariffs, tariffs against all U.S. trading partners are much higher than they were at the beginning of 2025," said Gus Faucher, chief economist at PNC Financial. "These higher tariffs will be reflected in consumer prices over the next few months, pushing inflation back up."