Prices continued to trend down toward the Federal Reserve's 2% target last month despite the rollout of sweeping tariff hikes.
The Consumer Price Index rose 0.2% in April for an annualized increase of 2.3%. Core CPI, which factors out food and energy, was up 0.2% on the month and 2.8% year over year.
The readings for both headline and core CPI matched the Wall Street consensus forecasts. The headline figure declined by 0.1% in March, driven by falling energy prices, while the core index ticked up 0.1%.
The April report from the Bureau of Labor Statistics will be welcomed by the Federal Reserve, which voted last week to hold its benchmark interest rate steady as it awaits a clearer signal of either economic deterioration or price stabilization.
Technically, the Fed targets 2% core inflation relative to a different government index, the Personal Consumption Expenditure index. The levels on the two readings are slightly different, but tend to rise and fall together.
The trajectory of prices is promising for the Fed's effort to bring inflation to heel, but the report is only a single data point in the current ambiguous economic policy environment. The April reading comes just one day after the White House
In a note distributed Monday, BMO Capital Markets analyst Ian Lyngen said most investors would view the report from the Bureau of Labor Statistics as "stale information" because it sheds no light on the biggest questions of the moment: whether the trade environment is driving up prices and what that means for the trajectory of interest rates.
"This leaves the U.S. rates market in headline-watching mode for anything further related to the evolution of global trade and insight on how quickly investors might expect progress on other bilateral trade agreements," Lyngen wrote.
Ahead of Tuesday's release, there were mixed feelings about whether market participants and observers should expect to see noticeable price changes so soon after President Donald Trump's so-called
Andy Schneider, senior U.S. economist with BNP Paribas, wrote in a note last week that it was "too early" to see significant changes in price growth attributable to the tariffs. He added that many firms are stuck between the "push and pull between contending with increasingly high tariff rates and uncertainty over their persistence at current levels."
BNP projected a headline CPI increase of 0.2% and a core CPI uptick of 0.26%, but Schneider noted that further increases are expected later in the year.
"We maintain our long-held view that tariffs will translate to substantially higher U.S. inflation," he wrote. "We see domestic prices heating up materially by summer, with [year-on-year] core CPI peaking at 4.4% by Q2 2026."
Fed Gov. Adriana Kugler, in a
While it does not appear that such costs have been conveyed to consumers at large scale, Kugler warned that if they are, the effects on the economy could be far reaching and detrimental.
"Given these expected price increases, real incomes will fall, and operating costs will rise, which will lead consumers to demand fewer final goods and services and firms to demand fewer inputs," she said. "Ultimately, I see the U.S. as likely to experience lower growth and higher inflation."
Yet, despite this outlook, Kugler said she is content for the Federal Open Market Committee to keep its policy rate unchanged until the economic trajectory comes into better focus.
"With inflation and employment potentially moving in opposite directions down the road, I will closely monitor developments as I consider the future path of policy," she said.
