U.S. consumer prices rise by 2.3% year-on-year in April

Investing.com - U.S. consumer prices rose at a slower than anticipated rate in April, but remained slightly above the Federal Reserve’s target level, as economists assessed the impact of rapidly-evolving U.S. trade policies.

The headline consumer price index grew by 2.3% in the 12 months to April, compared with expectations that it would match March’s pace of 2.4%. It was the lowest rate of inflation since February 2021, shortly before pent-up pandemic-fueled demand and supply constraints led to soaring prices.

Month-on-month, the measure came in at 0.2% following a decline of 0.1% in the prior month, according to Labor Department data on Tuesday. Estimates had called for an uptick of 0.3%.

Shelter costs accounted for more than half of the monthly increase, the Labor Department said in a statement, while prices for energy and medical care grew. Prices for furniture and bedding prices, as well as major applicances and toys, also inched up.

So-called "core" CPI, which strips out volatile items like food and fuel, increased by 2.8% year-on-year, in line with both March’s reading and projections. On a monthly basis, it rose by 0.2%, versus 0.1% in March and estimates of 0.3%.

The figures cover a period that has included a series of shifts on trade by the Trump administration. Following the introduction of elevated "reciprocal" levies on a host of countries at a White House event on April 2, stock and bond markets roiled. President Donald Trump later instituted a 90-day pause on most of the duties, as well as a slew of sector-specific exemptions.

On Monday, the U.S. announced a lowering and delay to soaring tariffs on China after two days of high-stakes negotiations between representatives from both countries in Switzerland. Stocks spiked on the agreement, as investors hoped that it would signal a cooling in intensifying trade tensions between the world’s two largest economies.

Meanwhile, the inflation figures will likely play into how markets perceive the path ahead for Fed interest rates. The central bank, which has set a goal of stabilizing inflation at around 2% year-on-year, has indicated that it will take a wait-and-see approach to future rate decisions.

Chair Jerome Powell suggested last week that monetary policy is well-calibrated at the current moment because the wider economy is showing signs of resilience despite pressures from Trump’s tariffs. Economists have warned that the levies could refuel inflationary pressures and weigh on broader economic activity, while several businesses have flagged difficulties making investment decisions in the current economic environment.

The Fed, which left rates unchanged at a range of 4.25% to 4.5% last week, has warned that risks to inflation and unemployment are rising -- a claim Powell later attributed largely to the tariffs.

In a note, Stephen Brown, Deputy Chief North America Economist at Capital Economics, said that the CPI data suggest that core personal consumption expenditures prices -- the Fed’s preferred inflation gauge -- rose at a rate consistent with the central bank’s target for a second straight month.

However, Brown said "it is likely to be a different story [in May] as tariff effects start to feed through".

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