CPI data shows benign pre-tariff inflation
Add Axios as your preferred source to
see more of our stories on Google.
Illustration: Annelise Capossela/Axios
Even if you squint, there is little sign of the trade war to be found in Tuesday morning's April inflation data.
- Rather, it's the latest evidence that price pressures were still diminishing before the full onset of new tariffs.
Why it matters: The brunt of higher import taxes looks likely to arrive this summer, even with de-escalation in the last several days, and even as the underlying trajectory for inflation looks the best it has in four years.
Catch up quick: The Consumer Price Index rose 2.3% in the 12 months ended in April, the lowest annual pace since February 2021.
- Over the last three months, core CPI — excluding volatile food and energy — rose at a 2.1% annual rate.
- Because CPI runs a little higher than the inflation measure preferred by the Federal Reserve, that's evidence that trend inflation, in advance of the trade war's impact, was squarely in line with the Fed's 2% target.
Yes, but: Neither the new report's details nor anecdotal reporting from businesses points to the tariff impact flowing through to consumer prices — yet.
- The "Liberation Day" tariffs were announced April 2 then paused for 90 days starting April 9.
- Retailers and their suppliers are still working through pre-tariff inventories. It takes weeks or months for goods to make it across the Pacific Ocean, through ports and wholesale distributors, to end up on store shelves.
- Even some product categories for which Americans overwhelmingly rely on imported goods showed scant signs of the new duties in the April data. Apparel prices were actually down 0.2%.
State of play: The de-escalation of the trade war with China announced early Monday, which pulled the tax on Chinese imports from 145% to 30%, lowers the odds of an extreme inflation surge and/or empty store shelves over the summer.
- However, the cumulative impact of tariffs is still likely to be visible over the months ahead.
By the numbers: The Yale Budget Lab's latest analysis, incorporating the China deal and last week's U.S.-U.K. deal, finds that American consumers are now on track to face an effective tariff rate of 17.8%, the highest since 1934.
- That's enough to push the price level up by 1.7 percentage points, or about $2,800 per household. It works out to a 0.7 percentage point reduction in GDP growth and a 0.4 percentage point increase in the unemployment rate.
Between the lines: That all points to a one-time jump in prices in the near term, and a slowdown but not a recession.
- In that scenario, the Fed would be inclined to cut interest rates, so long as it did not see evidence that longer-term inflation expectations were coming unmoored.
What they're saying: "[I]t is good news that underlying inflation continued to decelerate ahead of the tariffs," wrote Eric Winograd, head of developed markets at AllianceBernstein.
- "That should allow the Fed to cut rates later this year if the growth outlook slows as I anticipate even if tariffs push prices higher for a time."
