US CPI year over year increase is smallest since Feb 2021
April’s inflation data came in slightly softer than expected, but former President Donald Trump’s tariffs remain an unpredictable factor in the broader inflation outlook, depending on how trade negotiations evolve over the coming months.
According to the Labor Department’s Tuesday report, the Consumer Price Index (CPI) rose 0.2% in April on a seasonally adjusted basis. That put the year-over-year rate at 2.3%—the lowest level since February 2021 and just below the forecasted 2.4%. The monthly number matched economist expectations.
Core CPI, which strips out food and energy, also increased 0.2% in April, in line with estimates. The annual core rate held at 2.8%, slightly below expectations for a monthly gain of 0.3%.
Though price gains ticked up slightly compared to March, they remain well below the highs seen in 2021 and 2022. Financial markets had a muted reaction, with stock futures little changed and Treasury yields mixed.
“This is encouraging news on inflation, especially with new tariff-related price pressures likely on the horizon,” said Robert Frick, corporate economist at Navy Federal Credit Union. “Importers may still be absorbing some of the tariff costs for now, but that won’t last forever.”
Shelter remained the biggest contributor to monthly inflation, rising 0.3% in April and making up more than half of the overall increase. Energy prices rebounded with a 0.7% uptick after a steep drop in March. Food prices declined slightly by 0.1%.
Used car prices fell for the second consecutive month, down 0.5%, while new vehicle prices stayed flat. Apparel prices dipped 0.2%. On the other hand, medical services rose 0.5%, health insurance was up 0.4%, and auto insurance climbed 0.6%.
Egg prices dropped sharply by 12.7% in April but remained nearly 50% higher than they were a year ago.
Real average hourly earnings were unchanged in April and up 1.4% compared to last year, according to the report.
While inflation appeared under control in April, Trump's recent tariff policies could complicate the outlook. His widely anticipated “liberation day” speech introduced a 10% blanket duty on all imports, with plans for further retaliatory tariffs. However, he later eased up, including a 90-day pause on the steepest China-focused tariffs to allow for renewed negotiations.
Even with this temporary reprieve, economists warn inflation pressures could build again this summer. The across-the-board tariffs are still in place, and even a partial rollback may not be enough to prevent price acceleration.
“There’s no real sign of the tariffs impacting April’s numbers yet,” said Aichi Amemiya, economist at Nomura. “But starting in May, higher tariffs are likely to push core CPI higher, although softer consumer demand and inventory drawdowns could help offset that.”
Expectations for Federal Reserve rate cuts have shifted accordingly. Markets previously anticipated the first rate reduction in June, with as many as three cuts expected in 2025. That timeline has now moved out to September, with just two cuts now projected as inflation remains above the Fed’s 2% goal—a level it has exceeded for over four years.
While the Fed favors the Commerce Department’s personal consumption expenditures (PCE) index for setting policy, CPI remains a key input. The Bureau of Labor Statistics will release April’s producer price index on Thursday, which could offer additional clues on inflation’s near-term direction.