Key U.S inflation gauge shows price growth cooled in April with little sign of tariff impact

A key U.S. inflation gauge slowed last month as President Donald Trump’s tariffs have yet to noticeably push up prices. Spending by Americans slowed despite rising incomes, potentially an early reaction to higher prices on some imported goods.

Friday’s report from the Commerce Department showed that consumer prices rose just 2.1% in April compared with a year earlier, down from 2.3% in March and the lowest since September. Excluding the volatile food and energy categories, core prices rose 2.5% from a year earlier, below the March figure of 2.7%, and the lowest in more than four years. Economists track core prices because they typically provide a better read on where inflation is headed.

The figures show inflation is still declining from its post-pandemic spike, which reached the highest level in four decades in July 2022. Economists and some business executives have warned that prices will likely head higher as Trump’s widespread tariffs take effect, though the timing and impact of those duties are now in doubt after they were struck down late Wednesday in court, only to be temporarily reinstated by a federal appeals court in Washington, D.C.

On a monthly basis, overall prices and core prices both increased just 0.1% from March to April. The cost of big-ticket manufactured goods rose a hefty 0.5%, though that increase was offset by a 0.1 decline in other goods, such as groceries. The cost of services rose just 0.1% from March to April.

Americans cool off on spending

The big increase in durable goods prices could reflect the early impact of tariffs. Americans also cut back their spending on longer-lasting factory goods in April, the report showed.

Overall consumer spending — which includes spending on services — rose 0.2% in April from March, the report said, but that’s down from a big 0.7% rise in March.

The slowdown in spending could reflect some early caution on the part of consumers, economists said, in response to higher goods prices. It also suggests that some of the spending jump in March reflected consumers purchasing items like cars to get in front of the impact of tariffs. 

” This is unsurprising, given the implementation of tariffs,” Harry Chambers, assistant economist at Capital Economics said in a research note. “While tariffs may have started to weigh on consumers, this is far from a disaster,” he added.

“The pulling forward of consumer spending ahead of the tariff increases will continue to dampen household spending in the coming months, especially as they face higher prices and a softening labor market,” Kathy Bostjancic, chief economist at Nationwide, said in an email. “We anticipate that the improved inflation trend will reverse in the second half of the year as companies are forced to begin passing along a portion of the increased tariffs in order to protect profit margins.”

Walmart executives said earlier this month that the retail giant would increase prices for many products in May and June to account for the tariffs, while electronics chain Best Buy’s CEO Corie Barry said Thursday the company is increasing some prices as well because of the duties, as a “last resort.”

At the same time, incomes — before adjusting for inflation — rose a healthy 0.8% in April. Much of that gain reflected an increase in Social Security benefits as a result of the Social Security Fairness Act. The law signed in January by former President Biden, granted retroactive benefits for some retired teachers, fire fighters, and federal workers whose incomes previously weren’t fully counted toward Social Security benefits because they have pensions.

The inflation-fighters at the Federal Reserve said at their most recent meeting May 6-7 that inflation is still elevated, compared with their target of 2%. Fed officials, who focus more on core prices, broadly support keeping their key interest rate steady while they evaluate the impact of the tariffs on inflation and jobs.

The court ruling last Wednesday said that most of Trump’s tariffs were unlawful, including his duties on imports from Canada, Mexico, and China, as well as those on more than 50 other countries. Tariffs on steel, aluminum, and cars were implemented under different laws and remain in place.

But the duties were allowed to remain in effect while the Trump administration appeals the ruling against them. And administration officials say they will find other legal authorities, if needed, to implement the tariffs. As a result, what tariffs will end up in place and for how long remains highly uncertain.