US consumer prices rose moderately in April, offering a dose of relief to investors and policymakers concerned about persistent inflation and the potential economic fallout from new tariffs.
The Consumer Price Index (CPI) increased 0.2% month-over-month and 2.3% year-over-year in April, marking the lowest annual increase since February 2021. Core CPI, which excludes volatile food and energy prices, was steady at 2.8% annually, according to data released Tuesday.
The inflation data, along with signs of cooling in certain categories, has calmed markets and lessened immediate pressure on the Federal Reserve to act. “The benign April CPI print doesn’t really move the needle for the Fed,” Bank of America noted, saying the central bank is unlikely to cut rates unless the labor market shows clear signs of weakness.
“The report doesn't change our outlook,” analysts wrote. “Tariff-driven price hikes are still likely to result in higher inflation in the coming months.”
Tariff impact muted
For now, businesses appear to be holding off on passing along higher costs from new import tariffs. “Businesses largely refrained from pre-emptive increases in the prices of goods subject to tariffs last month,” said Bill Adams, chief economist at Comerica Bank. While Adams expects inflation to pick up in the second half of the year, he added, “Price pressures from tariffs will probably be manageable for most businesses and consumers.”
Kathleen Brooks, research director at XTB, said the key driver of inflation in April was shelter. “This is one part of the index that is unlikely to be touched by tariffs, suggesting that elements of US core inflation remain sticky even without the impact of inflation,” she said.
“There is nothing in the inflation data to suggest that consumer demand weakened during the peak of global trade tensions.”
Still, analysts warned of potential risks later this year. “Inflation is still likely to pick up in the second half of 2025,” said Adams. He noted that although tariff rates have been reduced, further changes could still impact pricing down the line.
Trade uncertainty remains
As well, global trade uncertainty continues to cloud the outlook. “Improvements in global trade will provide some clarity on the future path of inflation,” said Jeffrey Roach, chief economist at LPL Financial. “However, the uncertainty about what might happen after these temporary trade deals makes things difficult for the Fed since stagflation remains a risk.”
Chris Zaccarelli, chief investment officer at Northlight Asset Management, said the data had lifted a major concern for investors. “And just like that, the markets’ twin fears – a tariff-induced recession and sticky inflation – have been greatly assuaged,” he said. “Markets should love this data and continue yesterday’s (China-trade) celebration.”
With inflation appearing contained—for now—and labor markets still healthy, investors are watching closely to see whether May and June data reflect more substantial effects from tariffs and other global developments.