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April CPI report: Good news, but old news

Market response

May 14, 2025 | 2 min read

Christian Floro, CFA, CMT

Market Strategist

Seema Shah

Chief Global Strategist

The April CPI report was lower than expected, bringing the annual headline increase to 2.3%, the smallest year-over-year gain since February 2021. Core inflation was equally muted, with the annual rate unchanged at 2.8%. While there was some early evidence of tariff-related pass-through, today’s CPI data is likely already outdated, especially given the recent significant shifts in trade policy over the past month.

Report details

Monthly headline inflation declined 0.2% in April, slightly lower than expected, bringing the annual rate to 2.3%—from 2.4% prior and the smallest year-over-year gain since February 2021. Core inflation, which strips out food and energy, also came in lower than expected, increasing 0.2% in April, leaving the annual rate unchanged at 2.8%. The report provides a first holistic look at how the administration’s ‘Liberation Day’ tariffs are feeding through to prices, which appears milder than expected—so far. Nevertheless, given the ever-shifting policy environment on trade, this data is likely already outdated.
Food prices decreased 0.1% in April, with prices for food at home falling 0.4%, the largest decline since September 2020, primarily driven by a 12.7% decline in egg prices as the impact of bird flu has eased. Energy prices increased 0.7% in April.
Core inflation has remained predominantly a function of services prices, which increased 0.3% on the month. Shelter remained the largest contributor to the services category, with owner’s equivalent rent rising 0.4%. Meanwhile, an ongoing weakening in travel demand amid elevated macro uncertainty has weighed on airfares and lodging away from home prices. Both were among the major categories that led declines in core inflation.
Core goods prices increased 0.1%, primarily driven by categories most likely to have been affected by tariff hikes, including recreational commodities and household furnishings. It remains too early, however, to see the full effect of the tariffs, which are likely to continue to filter through to prices in the months ahead.
The Fed's preferred supercore inflation measure, which excludes shelter from core services and is primarily driven by wage costs, increased by 0.2%, bringing the annual rate down to 2.7%, from 2.9% prior.

Policy outlook

Today’s softer than expected inflation report suggests that tariffs have yet to feed through to inflation. But, it is questionable whether today’s CPI print moves the needle after the rollercoaster ride of trade policy of the past month. Not only is the April CPI report unlikely to have fully captured the tariff impact post-Liberation Day, but inflation numbers will now be further whipsawed by the U.S.-China temporary trade truce announcement.

Nevertheless, with tariffs still higher today compared to the start of the year, an inflationary impulse is likely still forthcoming and should emerge during late Q2. This impact may be partially and quickly eroded, particularly for core goods prices, however, if container traffic rapidly resumes in light of the drop in U.S.-China tariffs. The overall implication is that a clear read on the inflation trend won’t be visible for several months yet, which likely implies a prolonged Fed pause.

Macro views

Disclosure

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Views and opinions expressed are accurate as of the date of this communication and are subject to change without notice. This material may contain ‘forward-looking’ information that is not purely historical in nature and may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

The information in the article should not be construed as investment advice or a recommendation for the purchase or sale of any security. The general information it contains does not take account of any investor’s investment objectives, particular needs, or financial situation.

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