U.S. Consumer Prices Show Moderate Rebound in April

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer prices rebounded moderately in April, leading to the smallest annual increase in four years. However, the inflation outlook remains uncertain amid ongoing tariffs.

The rise in prices, reported by the Labor Department on Tuesday, was below economists’ expectations and did not alter their prediction that the Federal Reserve would likely pause its interest rate-cutting cycle until late summer. Data indicated cooling price pressures prior to President Donald Trump’s import duties, with their effects expected to be apparent in May’s consumer price data.

Despite a significant step toward de-escalation in the U.S.-China trade war over the weekend, a 10% blanket duty on nearly all imports, along with sector-specific tariffs, remains in place.

Jeffrey Roach, chief economist at LPL Financial, noted, “Improvements in global trade will provide some clarity on the future path of inflation. However, uncertainty regarding the aftermath of these temporary trade deals complicates the Fed’s position, as stagflation remains a risk.”

The Consumer Price Index (CPI) rose by 0.2% in April after a 0.1% decline in March, which marked the first decrease since May 2020. Economists had forecast a 0.3% increase. Shelter, including rents, contributed to over half of this rise, while food prices fell by 0.1%.

Notably, grocery prices saw a 0.4% decline, the largest since September 2020, due in part to a 12.7% drop in egg prices, although they have surged by 49.3% year-on-year. Prices for fruits, vegetables, cereals, and bakery products also dropped.

Conversely, prices for nonalcoholic beverages climbed 0.7%, while gasoline prices decreased by 0.1%, amid rising natural gas and electricity costs.

In the 12 months leading to April, the CPI increased by 2.3%, down from 2.4% in March. This data reflects tariffs, including a rise in taxes on Chinese imports and a 25% tariff on imported vehicles imposed prior to Trump’s April 2 announcement.

The Trump administration has proposed a reduction in duties on Chinese goods to 30% for the next 90 days, while tariffs on U.S. goods shipped to China would decrease from 125% to 10%.

Despite these measures, economists anticipate a rise in inflation this year due to tariffs, albeit less sharply than previously expected due to the brief truce between the U.S. and China. Easing trade tensions are believed to support the U.S. economy in avoiding recession, though growth is projected to be sluggish.

Following the inflation data, shorter-dated U.S. Treasury yields saw minor declines, U.S. stocks mostly traded higher, and the dollar weakened against a collection of currencies.

Excluding volatile food and energy prices, the CPI again rose by 0.2% in April following a 0.1% increase in March, largely driven by a 0.3% uplift in shelter costs and a 0.4% rise in owners’ equivalent rent.

Kathy Bostjancic, chief economist at Nationwide, commented that inflation might peak at around 3.4% year-on-year in the fourth quarter, lower than previously projected. The Fed aims for a 2% inflation target, confronting looming tariffs on pharmaceuticals and semiconductors.

Last week, the Fed maintained its benchmark overnight interest rate between 4.25% and 4.50%, with financial markets anticipating a policy easing resumption in September.