2025 U.S. CPI Report: Trump Tariffs Unexpectedly Slow Inflation, Drawing Attention from Economists
The U.S. Consumer Price Index (CPI) report for April of 2025 is about to be released, with inflation expected to stay at 2.4% and core CPI at 2.8%. Despite the Trump administration's imposition of tariffs up to 145% on countries such as China, economists note that these tariffs have temporarily suppressed inflation. This situation has caught the attention of both the market and policymakers, with the Federal Reserve opting to take a wait-and-see approach. Economists caution that inflationary pressures could surface in the next few months, with core CPI possibly climbing to 4% by year's end.
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05/12 10:25
2025 U.S. CPI Report: Trump Tariffs Unexpectedly Slow Inflation, Drawing Attention from Economists
The U.S. Consumer Price Index (CPI) report for April of 2025 is about to be released, with inflation expected to stay at 2.4% and core CPI at 2.8%. Despite the Trump administration's imposition of tariffs up to 145% on countries such as China, economists note that these tariffs have temporarily suppressed inflation. This situation has caught the attention of both the market and policymakers, with the Federal Reserve opting to take a wait-and-see approach. Economists caution that inflationary pressures could surface in the next few months, with core CPI possibly climbing to 4% by year's end.
Tariffs and Inflation: Unexpected Short-term Suppressive Effects
According to a report by USA Today, despite the Trump administration imposing tariffs as high as 145% on Chinese goods since early April and implementing a "reciprocal tariff" policy on other trade partners, the estimated annual CPI growth rate for April remains at 2.4%, with a possibility of dropping to 2.3%, the lowest level since February 2021. The core CPI is expected to remain at 2.8%. This result contradicts the market's intuitive expectation that high tariffs would drive up prices.
Ryan Sweet, Chief U.S. Economist at Oxford Economics, pointed out that part of this phenomenon is due to the global economic slowdown expectations triggered by high tariffs, leading to simultaneous declines in oil prices and consumer spending, thereby suppressing overall price pressure. For example, U.S. crude oil prices fell from $80 per barrel in January to about $60 in April, gasoline prices dropped by 6.3% in March, and are estimated to fall another 0.4% in April. Airfare has also declined for three consecutive months, with an estimated further drop of 2% in April.
Additionally, the consumer confidence index and retail spending have shown signs of weakness. According to Yahoo Finance, although U.S. household spending has not fully contracted, spending on high-priced items such as travel and durable goods has begun to decrease. This shift in consumer behavior makes it difficult for businesses to fully pass on tariff costs to consumers, further suppressing inflationary pressure.
Economists' Observations: Short-term Suppression, Long-term Risks Remain
Although current CPI data shows temporary relief in inflationary pressure, several economists warn that this phenomenon may only be a short-term effect. Both Sweet and Barclays' economist Pooja Sriram predict that as businesses gradually pass on import costs to consumers, inflationary pressure will begin to manifest in June or July, with core CPI possibly rising to 4% by the end of the year.
Federal Reserve Chairman Jerome Powell stated in a press conference in early May that although current data does not yet show a significant impact of tariffs on the economy, he emphasized that "the tariff impact has not really taken effect" and noted that "the inflation effect may be temporary or more lasting," depending on the scale and duration of the tariffs.
Furthermore, according to analyses by Bloomberg and Economic Times, retailers find it difficult to significantly raise prices in the face of weak demand, partially offsetting the inflationary effects of tariffs. However, this also means that corporate profit margins are under pressure, and if demand rebounds in the future, price pressure may be quickly released.
Background of Tariff Policy: Trump's "Liberation Day" and Trade Negotiation Progress
In early April, the Trump administration announced the "Liberation Day" tariff policy, imposing reciprocal tariffs on all major trade partners and imposing tariffs as high as 145% on Chinese goods. This move caused global supply chain disruptions and market unease. However, in early May, the U.S. and China reached a preliminary agreement in Geneva, announcing a 90-day suspension of the tariff war and significantly reducing bilateral tariffs by 115 percentage points, with U.S. tariffs on Chinese goods dropping to 30% and Chinese tariffs on U.S. goods dropping to 10%.
Although the market reacted positively to this agreement, economists generally believe it is only a temporary measure. According to a report by The New York Times, the two sides have not yet reached a concrete consensus on core trade disputes, and multiple rounds of negotiations are still needed in the future. The Federal Reserve and market participants are therefore highly vigilant about inflation and economic prospects.
Specific Impact of Tariffs on CPI Components
According to reports by USA Today and Bloomberg, several key items in the April CPI showed price declines, some indirectly related to tariffs:
- Used car prices fell significantly, putting downward pressure on the overall CPI.
- The annual growth rate of rent dropped to 4%, the lowest since January 2022.
- Egg prices fell sharply as the avian flu crisis eased.
- Airfare declined for three consecutive months, reflecting a drop in oil prices and travel demand.
- Financial service fees decreased due to stock market volatility, having a greater impact on the PCE price index.
These items collectively contributed to the downward momentum of the CPI, although some goods such as imported appliances, clothing, and auto parts are already facing rising cost pressures, which have not yet been fully reflected in retail prices.
Federal Reserve Policy Stance: Wait-and-See and Data Dependence
Facing the high uncertainty of tariff policy and inflation data, the Federal Reserve chose to keep interest rates unchanged. Powell emphasized that the current policy stance is "wait-and-see," stating that "it is not advisable to rashly adjust interest rates before seeing substantial economic impact."
Several Federal Reserve officials have also publicly stated recently that they will closely monitor CPI, PPI, and retail sales data in the coming months, particularly the actual impact of tariffs on business and consumer behavior. Fed Governor Christopher Waller reiterated the independence of central bank policy, calling for the avoidance of political interference in monetary policy.
