Key Points

  • Annual inflation slowed in April to its lowest level since February 2021, indicating that the highest tariffs in decades imposed by President Trump in April have not yet triggered an immediate surge in prices.
  • The U.S. Bureau of Labor Statistics reported Tuesday that the Consumer Price Index (CPI) rose 0.2% month over month, below expectations, and 2.3% year over year. Core CPI, which excludes volatile food and energy prices, rose 2.8% year over year, unchanged from March and marking the lowest 12-month increase in four years.
  • Economists warned against overinterpreting the data, noting that most April prices reflected business decisions made before the tariffs took effect. Bank of America economists said in a report: "This report does not change our outlook. Tariff-driven price increases could still push inflation higher in the coming months."

Deeper Analysis

After reaching an agreement with the UK last week to reduce import tariffs, the Trump administration announced Monday that it would cut tariffs on China from 145% to 30% for 90 days. However, the Yale Budget Lab noted that even after this reduction, U.S. consumers still face an effective tariff rate of 17.8%, the highest since 1934.

The Yale Budget Lab said Monday that current import tariffs will raise the price level by 1.7% in the short term, costing the average American household an additional $2,800. The institution also projects that tariffs will reduce economic growth this year by 0.7 percentage points and by 0.4 percentage points in the long term, while eliminating 456,000 U.S. jobs this year and pushing the unemployment rate up 0.4 percentage points to 4.6%.

The Yale Budget Lab said clothing and footwear prices will rise more than most other goods, increasing by 14% and 15%, respectively.

Federal Reserve Governor Adriana Kugler said Monday, following Trump's announcement of a partial rollback of tariffs on China: "Trade policy is evolving and may continue to change. Even so, even if tariffs remain near their currently announced levels, they could have significant economic effects, and tariff-related uncertainty has already affected the economy through front-loading, sentiment, and expectations."

Kugler noted that import tariffs could weaken multiple economic indicators. "Real incomes will decline, and operating costs will rise, leading consumers to reduce demand for final goods and services and businesses to reduce demand for inputs." She added: "Over the longer term, productivity could also be significantly affected," as firms cut capital investment and shift to less efficient input mixes in response to higher input costs and lower demand. "Ultimately, I think the U.S. could experience slower growth and higher inflation."

According to U.S. Bureau of Labor Statistics data, housing prices—a category not directly linked to tariffs—rose 0.3% month over month in April, contributing more than half of the overall inflation increase. The energy price index rose 0.7% month over month last month, as increases in natural gas and electricity prices offset declines in gasoline prices.