Consumer Price Index April 2025

Strong disinflation trend before the tariff creep 

• Prices were on a solid disinflationary trend ahead of the significant tariffs increases in early April. Headline inflation slipped to 2.3% year over year (y/y) in April — its lowest level since February 2021 and within striking distance of the Fed’s 2% target. Core inflation, meanwhile, held at 2.8% y/y, its lowest since March 2021. Looking ahead, higher tariffs will lead to a renewed inflation impulse, but the China tariffs détente has led us to revise down our year-end Consumer Price Index (CPI) inflation forecast by 0.4 percentage point (ppt) to around 3.2%. 
  
  
• Headline CPI rose a less-than-expected 0.2% month over month (m/m) in April following 0.1% contraction in March. Energy prices rose 0.7% as higher electricity and natural gas prices offset lower prices at the pump. Food prices eased as grocery prices fell by the most since 2020 (on the largest plunge in egg prices since 1984) and restaurant prices rose moderately.
  
  
• Core prices (excluding food and energy) gained a smaller-than-expected 0.2% m/m in April, after a modest 0.1% gain in March. Core goods prices rose 0.1% with lower used car and apparel prices offset by higher medical care commodities prices. Core services prices (excluding energy) increased a moderate 0.3%, largely stemming from a moderate 0.3% advance in shelter costs. Notably, airfare fell sharply for a second consecutive month, an indication of potential consumer caution.
  
  
• The April CPI report shows inflation trends as they could have been. Upcoming reports will increasingly reflect the pass-through from recent steep tariff increases. Our modeling shows that if the universal 10% tariff on all trading partners and 30% tariff on China are maintained, US consumer price inflation in Q4 2025 will be 0.4ppt higher. For reference, this compares to a 0.8ppt delta with China tariffs at 145%. 
  
  
• For the Fed, tame inflation dynamics and resilient labor market conditions support the case for holding rates steady beyond midyear. With little clarity on the final status quo for trade policy and Fed policymakers unlikely to preempt any growth or inflation developments, we now only anticipate two Fed rate cuts (instead of three), and believe the first rate cut will come in September (instead of July).