Tariff pressures still loom over summer outlook after softening US inflation in April

Time of India

a day ago

The US Federal Reserve's preferred inflation gauge eased more than expected in April, offering a temporary reprieve from price pressures even as new tariffs introduced by President Donald Trump began to take effect.
According to data released Friday by the Commerce Department, the personal consumption expenditures (PCE) price index rose 2.1% year-over-year, down from a revised 2.3% in March. The figure came in slightly below the 2.2% median forecast from economists surveyed by Dow Jones Newswires and The Wall Street Journal, keeping overall inflation just above the Fed's 2% long-term target, AFP reported.
On a monthly basis, headline inflation edged up 0.1%, mirroring the increase in the 'core' PCE index, which excludes volatile food and energy prices.
Core inflation rose 2.5% from a year earlier, just under the 2.6% economists had projected.
'We're seeing evidence that we were on track for a perfect landing when it comes to inflation,' said Gregory Daco, chief economist at EY, speaking to AFP. 'But that unfortunately came before the tariff storm that is likely to lead to an inflationary acceleration over the course of the summer.'
The April price gains were largely driven by a 0.5% increase in prices for durable goods and energy, which was partially offset by a 0.3% decline in food prices.
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Trump's newly imposed tariffs, dubbed 'liberation day' duties, took effect on April 2, with a 10% levy applied to most countries and even higher rates imposed on key trading partners shortly thereafter. Though some of the measures have since been paused, legal battles are ongoing.
This week, the US Court of International Trade ruled Trump exceeded his legal authority, only for a federal judge to grant a temporary stay, allowing the tariffs to remain in place during the appeal.
While it's too early for these tariffs to be fully reflected in the data, Daco noted early signs of upward pressure, pointing out that furniture prices began climbing in April following the new duties. 'That bodes poorly for the inflation outlook over the coming months,' he warned, suggesting that rising prices could begin to erode consumer spending.
The Trump administration maintains that the tariffs will help reduce trade imbalances and won't harm the broader economy, though many economists expect higher consumer prices and a slowdown in growth — at least in the short term.
In more positive economic news, personal income rose 0.8% in April, significantly ahead of the 0.3% forecast. Additionally, the personal saving rate jumped to 4.9% from a revised 4.3% in March, indicating that consumers are holding onto more of their disposable income.
For the Federal Reserve, Friday's data may offer temporary relief. The central bank has kept interest rates steady at a range of 4.25% to 4.50%, and officials continue to deliberate over the timing of future rate cuts.
Still, the outlook remains uncertain. Jeffrey Roach, chief economist at LPL Financial, cautioned that the current cooling in inflation may not last. 'Inflation will likely reaccelerate for the remainder of 2025 as both supply and demand pressures will push annual inflation rates higher,' he wrote in a note shared with AFP.
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