Consumer prices were up just 0.1% in April, a modest increase from flat growth in March and the second-lowest monthly reading in the past five months, according to new data released by the Bureau of Economic Analysis.
- On a year-over-year basis, inflation slowed to 2.1% in April, down from 2.3% in March and marking the lowest annual increase since September 2024.
Core prices, which strip out the more volatile food and energy categories, also rose just 0.1% for the second consecutive month. That pulled the annual core inflation rate down to 2.5%—its lowest level since March 2021.
Incomes Rise: While prices remained tame, personal income surged 0.8% in April, up from a 0.7% gain the prior month. It’s now tied for the strongest monthly increase in the past 14 months.
- Despite stronger income growth, consumer spending slowed significantly, rising just 0.2% in April, down sharply from 0.7% in March. This marks the second-lowest monthly gain in consumer spending over the past eight months.
Uncertainty Ahead: Many are wondering why the Fed is cutting rates with signs of a slowing economy, softening labor market, and falling inflation. As Nick Timiraos noted in the Wall Street Journal after the CPI report, “the April inflation numbers will be treated like observing sunny weather ahead of a widely anticipated storm where the rainfall.”
- Storm Clouds: Robin Brooks, Senior Fellow at the Brookings Institution, wrote on his Substack, “Tariffs are clearly an inflationary shock for the US, a big net importer. But they’re a deflationary shock for much of the rest of the world, especially the Euro zone and China…”
Bottom Line: With various court rulings and the President raising and lowering tariffs day-to-day, the Fed is likely to stay in a wait and see approach till they have a better grasp of what is happening with prices.