CPI report April 2025: Inflation eased to 4-year low
That's the lowest annual increase since February 2021 but still leaves inflation moderately above the Federal Reserve's 2% goal.
On a monthly basis, costs rose 0.2% after dipping 0.1% in March.
Prices for groceries, used cars and airfares all fell sharply, while medical services and auto insurance and repairs continued to drift higher.
The report provides a snapshot of consumer prices just as Trump's reciprocal tariffs were kicking in, capturing the economic uncertainty they spawned but only partly reflecting the projected jump in costs.
Further blurring the picture: the Trump administration announced a 90-day pause on the highest import fees for dozens of countries in early April and a similar truce with China on Monday that allows the two sides negotiate further.
Some forecasters hailed the reprieve but others said the levies will still push inflation sharply higher within months.
What is core inflation?
Core inflation, which excludes volatile food and energy items and is watched closely by the Fed because it reflects more sustainable trends, increased 0.2% after inching up 0.1% in March. ,That kept the annual increase at 2.8%, lowest in four years.
Do tariffs affect inflation?
Economists were split over whether the tariffs nudged inflation higher last month.
Barclays said it was too early for the fees to filter into prices.
Wells Fargo said "the reality of tariffs will likely have started to influence pricing decisions" but business' efforts to avoid alienating customers and confusion over Trump's shifting policies likely meant just a modest uptick in costs.
Goldman Sachs anticipated some effects on items "particularly exposed" to duties on Chinese goods, such as clothing and cellphones.
For now, tariffs have raised recession fears and heightened uncertainty. In March, such jitters softened consumer demand and lowered costs for items such as gasoline and travel services, said economist Ryan Sweet of Oxford Economics.
What is the agreement between the US and China?
Meanwhile, the U.S. said Monday it was reducing tariffs on Chinese imports to 30% from 145% while China lowered its duties on U.S. shipments to 10% from 125%, igniting a huge stock market rally.
Nationwide Chief Economist Kathy Bostjancic estimated the 30% fee on China and 10% charge on other countries would still drive inflation to 3.4% by year's end, though that's down from her prior 4% estimate. Manufacturers and retailers are expected to pass most of the fees to consumers through higher prices, sapping household buying power.
In a research note, economist Michael Reid of RBC Capital Markets said the average U.S. tariff rate is now 13%, down from 24% before Monday's news of the truce with China. But he added the deal "does little to help get inflation's path back to 2% as a 13% effective tariff rate is still nearly 5 times higher than the 2.4% rate seen in 2024."
How soon will the Fed lower interest rates?
While the pause on duties for Chinese imports could soften the potential inflation surge, it also could mean a somewhat stronger economy that dodges recession, giving the Fed leeway to wait longer to gauge the effects of the fees.
Fed fund futures markets have pushed back their forecast for the Fed to resume its market-friendly interest rate cuts from July to September. Capital Economics believes the the central bank will hold off on rate cuts until next year.
Why are gasoline prices dropping now?
Gasoline prices dipped 0.1%, the third straight monthly decline, and are down 11.8% over the past year. Regular unleaded averaged $3.14 a gallon Monday, down from $3.20 a month ago, according to AAA.
Oil prices have declined sharply this year on worries that the trade war will hobble the global economy, putting downward pressure on gas prices. Also, OPEC countries agreed to increase oil production starting in April.
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