Inflation eased to 4-year low in April as Trump's tariffs took effect, CPI report shows
Paul Davidson, USA TODAY
6 min read
Inflation eased to a four-year low in April as the nascent impact of President Donald Trump’s sweeping tariffs were offset by their cost-dampening effects in a slowing economy.
Overall consumer prices increased 2.3% from a year earlier, down from 2.4% rise the previous month, according to the Labor Department’s consumer price index, a measure of average changes in goods and services costs.
That’s the lowest annual increase since February 2021 but still leaves inflation moderately above the Federal Reserve’s 2% goal.
On a monthly basis, costs rose 0.2% after dipping 0.1% in March.
Prices for groceries, including eggs, used cars and airfares all fell sharply, while medical services and auto insurance and repairs continued to drift higher.
A shopper walks by the sodas aisle at a grocery store in Los Angeles.
The report provides a snapshot of consumer prices just as Trump’s reciprocal tariffs were kicking in, capturing the economic uncertainty they spawned but only partly reflecting the projected jump in costs.
Further blurring the picture: the Trump administration announced a 90-day pause on the highest import fees for dozens of countries in early April and a similar truce with China on May 12 that allows the two sides to negotiate further.
"This may be the low point in 2025," Nationwide senior economist Ben Ayers wrote in a research note. "As tariff costs increasingly flow into consumer prices, we expect a jump in the CPI this summer."
What is core inflation?
Core inflation, which excludes volatile food and energy items and is watched closely by the Fed because it reflects more sustainable trends, increased 0.2% after inching up 0.1% in March. ,That kept the annual increase at 2.8%, the lowest in four years.
Do tariffs affect inflation?
Economists were split over whether the tariffs nudged inflation higher in April.
Barclays said it was too early for the fees to filter into prices.
Wells Fargo said “the reality of tariffs will likely have started to influence pricing decisions” but business’ efforts to avoid alienating customers along with confusion over Trump’s shifting policies likely meant just a modest uptick in costs.
Goldman Sachs anticipated some effects on items “particularly exposed” to duties on Chinese goods, such as clothing and cell phones.
There were some signs that tariffs have started driving up prices for Chinese-made products last month, according to Capital Economics and Pantheon Macroeconomics. The cost of audio equipment jumped 9%; photographic equipment, 2.2%; furniture, 1.5%; and computers and accessories, 0.7%.
Apparel prices, though, edged down 0.2%.
Used car prices declined 0.5% but their costs are expected to leap within a couple of months as a 25% tariff on imported cars boosts demand for used cars, economists say. Wholesale used car prices are already rising.
At the same time, tariffs have raised recession fears and heightened uncertainty. In March, such jitters softened consumer demand and lowered costs for items such as gasoline and travel services, said economist Ryan Sweet of Oxford Economics. A similar dynamic played out last month, with airline fares falling 2.8%, the third straight sharp decline, and hotel rates slipping 0.1% following a 3.5% drop the previous month.
What is the agreement between the U.S. and China?
Meanwhile, the United States said on May 12 it was reducing tariffs on Chinese imports to 30% from 145% while China lowered its duties on U.S. shipments to 10% from 125%, igniting a huge stock market rally.
Nationwide Chief Economist Kathy Bostjancic estimated the 30% fee on China and 10% charge on other countries would still drive inflation to 3.4% by year’s end, though that’s down from her prior 4% estimate. Manufacturers and retailers are expected to pass most of the fees to consumers through higher prices, sapping household buying power.
In a research note, economist Michael Reid of RBC Capital Markets said the average U.S. tariff rate is now 13%, down from 24% before May 12's news of the truce with China. But he added the deal “does little to help get inflation’s path back to 2% as a 13% effective tariff rate is still nearly 5 times higher than the 2.4% rate seen in 2024.”
How soon will the Fed lower interest rates?
A milder-than-expected inflation reading typically might prompt the Fed to consider reducing interest rates as soon as next month. But with a tariff-driven inflation spike still ahead, that's unlikely, economist Stephen Brown of Capital Economics said.
While the pause on duties for Chinese imports could soften the potential inflation surge, it also could mean a somewhat stronger economy that dodges recession, giving the Fed leeway to wait longer to gauge the effects of the fees.
Fed fund futures markets have pushed back their forecast for the Fed to resume its market-friendly interest rate cuts from July to September. Capital Economics believes the central bank will hold off on rate cuts until next year.
Are egg prices expected to go down?
Egg prices tumbled 12.7% after a flurry of increases tied to a long-standing bird flu outbreak. The crisis has eased recently, bringing down wholesale costs that were expected to push down retail prices. Egg costs are still up nearly 50% over the past year.
Grocery prices overall slid 0.4%, largely offsetting a 0.5% rise the previous month. Breakfast cereal fell 2.5%; rice, 2.3%; chicken, 0.3%; and bacon, 1%.
Other staples got a bit pricier, with bread rising 1.6% and fresh fish and seafood climbing 0.8%.
Dining out also continued to get more expensive. The cost of food away from home rose 0.4% for the third straight month and is up about 4% the past year, with pandemic-related labor shortages and pay increases still pushing up restaurant bills.
Why are gasoline prices dropping now?
Gasoline prices dipped 0.1%, the third straight monthly decline, and are down 11.8% over the past year. Regular unleaded averaged $3.14 a gallon on May 12, down from $3.20 a month ago, according to AAA.
Oil prices have declined sharply this year on worries that the trade war will hobble the global economy, putting downward pressure on gas prices. Also, OPEC countries agreed to increase oil production starting in April.
Is rent going to keep increasing?
Rent rose a relatively modest 0.3% for the fourth month, keeping the annual increase at 4%, the smallest since January 2022. Lower rents for new leases are finally filtering into rates for existing tenants.
Housing costs have been the biggest inflation driver, making up 35% of overall price increases in April.
Other service costs crept higher. Car insurance rates increased 0.6%; auto repairs, 0.7%; and medical care, 0.5%.
