Softer-Than-Expected Inflation Points to Muted Tariff Fallout Summary by Bloomberg AI
- US inflation rose less than forecast in April, with the consumer price index increasing 0.2% from March, driven by tame prices for clothing and new cars.
- The report suggests that companies are absorbing some of the extra costs of higher tariffs, and consumers are cutting back on leisure and discretionary spending.
- The temporary agreement to de-escalate the trade war with China has scaled back projections of how much damage tariffs will inflict on the economy, but economists still expect inflation to remain above the central bank’s target.
By Augusta Saraiva
05/13/2025 06:43:42 [BN]
(Bloomberg) — US inflation rose by less than forecast in April amid tame prices for clothing and new cars, suggesting little urgency so far by companies to pass along the cost of higher tariffs to consumers.
The consumer price index, excluding the often volatile food and energy categories, increased 0.2% from March, according to Bureau of Labor Statistics data out Tuesday. That marked the third-straight month of softer-than-forecast readings.
The CPI report highlights two underlying dynamics in the economy. Goods categories exposed to higher tariffs, including new cars and apparel, didn’t see the kind of price increases that economists had expected by now. That suggests importers and retailers are absorbing some of the extra costs and imported products sold now had arrived before the brunt of the tariffs — namely on China — were in effect.
Separately, some weakness in services categories like travel and recreation suggest consumers are cutting on leisure and other discretionary spending.
The temporary agreement reached over the weekend to de-escalate the trade war with China has largely scaled back projections of how much damage tariffs will inflict on the economy. While several economists say the US is now likely to avert a recession, the duties will still keep inflation well above the central bank’s target.
The 90-day reprieve — a move that brought the combined 145% US levies on most Chinese imports down to 30% — suggests some relief. But should the catch-up period to restock supply create congestion at ports, that may actually lead to faster price increases in the CPI, according to Bloomberg Economics.
And even with the reduction, US importers are still wrestling with higher trade costs and fear they could jump again when the pause is up.