U.S. inflation in April economists warned that it was ultimate calm ahead of the rise in consumer prices caused by President Trump's trade war.
Welcome news for the Trump administration and the Fed is better than expected reports, and the Fed has been trying to lower inflation to its 2% target since the pandemic. But policy makers and economists do not expect prices to continue as import taxes begin to bite.
Data released by the Bureau of Labor Statistics showed on Tuesday that the consumer price index rose 2.3% from the same period last year, the slowest annual rate since early 2021. Throughout the month, prices rose 0.2%, accelerating, while in March it fell 0.1%.
A measure of basic inflation that gradually deprived volatile food and energy items was reduced by 2.8% compared to the same period last year. Monthly prices rose 0.2%, slightly higher than the 0.1% gain last month.
Egg prices fell nearly 13% in April, which helped increase food-related costs by 0.1%. Gasoline prices also fell by 0.1%. Used cars and truck prices fell 0.5%, while new vehicles remained flat. Air tickets fell 2.8%, and were extended by 5.3% in March.
However, furniture costs have risen, but, along with people with personal care services and motor vehicle insurance, it has risen.
The data follows a significant turnaround in the Trump administration’s tariffs on China. Officials in Washington and Beijing agreed to temporarily reduce the tariffs on 90 days of tit tit tit tit rate on Monday.
Since last month, the U.S. has agreed to raise its tariffs on Chinese goods from a minimum of 145% to 30%. China has reduced its tariffs on U.S. goods from 125% to 10%.
While the suspension reduces the chances of a more severe economic shock, economists and policy makers, including the Fed (including Fed policy makers), warns that the scope and scale of tariffs Mr. Trump may retain will eventually weaken growth at the same time.
Almost all U.S. trading partners still have 10% tariffs, plus a reduction in tariffs on China, economists estimate that consumers still face an effective tariff rate of about 15%.
The full impact of these levies will take time to appear in the economic data, and most of the related prices will not increase until the summer.
There are many reasons for delay. To expect import taxes, many companies compete to build inventory before tariffs are launched to avoid higher costs. Companies (some of which are already reluctant to evict cash-strapped consumers and are reluctant to raise prices) will be able to lower these stocks first without having to sell new products at higher prices. Tariffs for intermediate goods used to produce other products are also slowly passed to consumer goods.
It is unclear whether tariffs will only lead to higher prices or fall into more persistent inflation problems. The Fed is concerned about the latter situation and makes it clear that the temporary priority is to ensure that expectations for longer inflation are not significantly higher.
There is concern that if consumers expect higher prices and ultimately demand higher wages to cover these increased costs, it could make it harder for the Fed to take root in periods of significantly higher inflation.
Central banks will temporarily lower interest rates until they become clearer on the economic impact of Mr. Trump’s policies. The standards for reducing borrowing costs are high, indicating that officials will wait to see substantial signs that the labor market is at risk before taking action.
