The consumer price index dipped in April – but economists still caution that tariff-related trouble could be ahead
The 10-year Treasury yield fell slightly Tuesday morning after US inflation came in lower than expected for April, likely cancelling out an uptick in the key mortgage rate benchmark at the beginning of the week.
The consumer price index (CPI) fell to 2.3% in April, slightly below the forecast of analysts polled by Bloomberg, as price pressures remained muted in the first month of the Trump administration’s global trade war.
But the decrease is unlikely to spur the Federal Reserve into imminent interest rate cuts, with economists warning that the tariff impact hasn’t worked its way into the economy yet.
Traders still expect the central bank to cut twice before the end of the year – by a total of about 55 basis points – and view September as the likely starting point for those reductions.
Bankrate’s Stephen Kates told Bloomberg the report did little to move the needle on expectations for the economy amid the tariff war. “This report is significant for its timing, as it is the first month following the announcement of the tariffs,” he said.
“However, it doesn’t offer an honest reflection of how businesses may ultimately respond to higher costs throughout 2025. As pre-tariff inventories dwindle in the coming months, businesses will be forced to trim margins or pass on costs to customers.”
The core CPI, which excludes volatile food and energy categories, was up 2.8% compared with the same time last year, continuing a steady pace from March.
Falling prices for services including hotels, airfares and sporting events helped push inflation lower last month, while a 12.7% plunge in egg prices contributed to a slide in grocery costs.
Overall and core inflation posted their lowest gains in April since the beginning of 2021, but First American senior economist Sam Williamson said the Federal Reserve will remain in no rush to bring rates lower.
“While an encouraging CPI report for the Federal Reserve, policymakers are likely to wait for additional clarity on the evolving tariff landscape before making decisions on future rate cuts,” he wrote after the report, “especially with the labor market holding steady.”
Primary shelter costs increased by 0.4% in April compared to the month before and continue to account for almost two-thirds of the overall jump in core inflation.
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