Pre-Tariff Inflation Calms Before the Storm
April's US Consumer Price Index (CPI) came in below market expectations for the third consecutive month. Both the headline and core readings rose 0.2%mom, and 2.3%yoy (a 4-year low) and 2.85%yoy, respectively.
Food prices declined notably, with egg prices recording their largest drop in four decades, though from previously elevated levels. The data also revealed weakness in discretionary spending categories including airfares, hotel accommodation, and recreational activities, suggesting consumers may be cutting back on non-essential purchases.
Importantly, these figures do not yet reflect Trump's recent tariff increases due to existing inventory buffers. While some businesses may absorb these costs given fragile consumer confidence, others will likely pass duties on to customers, potentially pushing future inflation higher. Consequently, market expectations remain largely unchanged, with futures still pricing in two Fed rate cuts this year, beginning around September.
Of course, Trump chimed in stating: “No Inflation, and Prices of Gasoline, Energy, Groceries, and practically everything else, are DOWN!!!”. “THE FED must lower the RATE, like Europe and China have done. What is wrong with Too Late Powell?”
Later today we have further clues on price levels from the PPI figures, and consumer health via the retail sales prints. The PPI final demand reading is currently expected to be flat in April; this figure is a key component of GDP.
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