U.S. inflation dropped to 2.3% in April, easing concerns over stagflation and leading to expectations of interest rate cuts.

Taiwan • Business • 05/14 01:54
U.S. inflation dropped to 2.3% in April, easing concerns over stagflation and leading to expectations of interest rate cuts.

According to data released by the U.S. Department of Labor on May 13, 2025, the annual CPI increase rate for April dropped to 2.3%, the lowest level since February 2021, which was below the expected 2.4%. The core CPI annual increase rate stayed at 2.8%, meeting expectations. This data shows that inflation has been slowing for three consecutive months, raising market expectations for a Federal Reserve interest rate cut, temporarily easing the risk of stagflation. However, uncertainty surrounding tariff policies could still impact future inflation trends.

Key Updates

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05/14 02:25

Inflation pressure in the U.S. is easing, but the impact of tariffs has not yet been observed. Forecasters are warning of potential price increases in May or June.

April inflation data in the U.S. indicates that the annual growth rate has dropped to 2.3%, marking a four-year low, which is below expectations. However, economists believe that the Trump administration's high tariff policies have not yet been fully reflected in prices, due to companies stockpiling inventories and the lagging effects of tariffs. The impact is expected to become evident in May or June. Federal Reserve officials remain cautiously watchful of future price trends, and the market is closely monitoring upcoming data to assess the impact of tariffs.

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CNBC commentator Jim Cramer breaks down the effects of Trump's temporary tariff delay policy on the market's rebound.

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05/14 01:54

U.S. inflation dropped to 2.3% in April, easing concerns over stagflation and leading to expectations of interest rate cuts.

According to data released by the U.S. Department of Labor on May 13, 2025, the annual CPI increase rate for April dropped to 2.3%, the lowest level since February 2021, which was below the expected 2.4%. The core CPI annual increase rate stayed at 2.8%, meeting expectations. This data shows that inflation has been slowing for three consecutive months, raising market expectations for a Federal Reserve interest rate cut, temporarily easing the risk of stagflation. However, uncertainty surrounding tariff policies could still impact future inflation trends.

05/13 15:24

China-US Reach 90-Day Tax Reduction Agreement: Toy Industry Benefits, Trump's New Drug Pricing Policy Gains Attention

On May 12, 2025, the US and China reached a 90-day "tariff reduction agreement" in Geneva, where US tariffs on Chinese goods were reduced from 145% to 30%, and Chinese tariffs on US goods were reduced from 125% to 10%. This agreement temporarily halts the trade war and is beneficial to the US toy industry, though the risk of price fluctuations still exists. On the same day, Trump signed an executive order to promote the "most favored nation pricing" policy for pharmaceuticals, mandating that pharmaceutical companies reduce US drug prices to align with those in other developed nations, which drew significant attention from the pharmaceutical industry.

Overview of Inflation Data: Annual Increase in the Consumer Price Index (CPI) of 2.3%, Lowest in Four Years

According to data released by the U.S. Bureau of Labor Statistics, the annual increase in the Consumer Price Index (CPI) for April 2025 was 2.3%, lower than March's 2.4% and below the market expectation of 2.4%. This marks the lowest annual increase since February 2021. The monthly growth rate was 0.2%, also below the expected 0.3%.

Excluding food and energy prices, the core CPI annual growth rate was 2.8%, unchanged from March and in line with market expectations; the monthly growth rate was 0.2%, slightly below the expected 0.3%. This indicates that core inflation pressure remains stable but has not worsened further.

According to a report by CBS News, housing costs remain a major driver of inflation, rising 0.3% in April and accounting for about one-third of the overall CPI weight. Energy prices rebounded by 0.7% in April after falling in March, while food prices decreased by 0.1%, with household food prices dropping by 0.4%, marking the first decline in nearly a year.

Detailed Price Changes: Decline in Egg, Clothing, and Transportation Costs

Among various goods and services, some prices showed significant declines. According to reports by Yahoo News and Epoch Times, egg prices plummeted by 12.7% in April, although the annual growth rate remains high at 49.3%. Clothing prices decreased by 0.2%, and airline ticket prices dropped by 2.8%, reflecting signs of slowing demand.

Prices for used cars and trucks continued to decline, with used car prices down 0.5% monthly, while new car prices remained flat. Grocery prices saw their first decline in nearly a year, indicating reduced retail price pressure.

On the other hand, healthcare service costs rose by 0.5%, and health insurance costs increased by 0.4%. These service category price increases partially offset the decline in goods prices.

Federal Reserve Policy Background: Interest Rates Unchanged, Monitoring Tariff Impact

In its early May meeting, the Federal Reserve decided to keep the benchmark interest rate unchanged, maintaining the policy stance set in December 2024. Although inflation data shows easing pressure, Federal Reserve Chairman Jerome Powell emphasized that uncertainty in tariff policy could still pose challenges to future prices and economic growth.

According to reports by Fox Business and USA Today, Powell noted that if high tariffs persist, it could lead to rising inflation, slowing economic growth, and increasing unemployment. He stated that the Federal Reserve will closely monitor the impact of tariffs on prices and adjust policies as necessary.

Currently, the market generally expects the Federal Reserve to possibly start cutting interest rates in September 2025. According to LSEG data, the market estimates the total rate cut for the year to be about 51 basis points, slightly converging from the previous expectation of 75 basis points.

Market Reaction: Weaker Dollar, Rising U.S. Stocks

The market responded positively following the release of the CPI data. The U.S. Dollar Index (DXY) fell by 0.8% to 101.003, reflecting increased investor expectations for Federal Reserve rate cuts. The euro appreciated by 0.9% against the dollar, while the pound and yen also rose by nearly 1% and 0.7%, respectively.

In the stock market, the S&P 500 Index rose by 0.72%, the Nasdaq Index increased by 1.61%, and the Philadelphia Semiconductor Index went up by 1.04%. The Dow Jones Industrial Average slightly declined by 0.39% due to individual component stock drops. Overall, market sentiment stabilized due to easing inflation.

Tariff Policy and Future Inflation Risks

Despite the mild inflation data for April, the market and policymakers remain closely watching the potential impact of tariff policy. According to reports by CBS News and CNBC, the "reciprocal tariff" policy introduced by the Trump administration, implemented from April 2, imposes tariffs of up to 145% on Chinese goods, although recently temporarily reduced to 30%, still far above past average levels.

Currently, the U.S. and China have reached a 90-day temporary agreement to suspend some tariff measures. During this period, companies have accelerated imports, leading to port congestion and rising freight costs. According to a report by United Daily News, some economists believe that companies have not yet fully passed on tariff costs to consumers, and the CPI may rebound in the coming months as inventories are depleted.

Additionally, according to reports by Fox Business and AOL, Federal Reserve officials Austan Goolsbee and Adriana Kugler both pointed out that if tariffs remain high, the risk of "stagflation" may increase, a situation where economic growth slows while prices rise.

Labor Market and Real Wage Changes

As inflation slows, real wages have seen improvement. According to a report by United Daily News, the real average hourly wage increased by 1.4% annually in April, unchanged from March; the real average weekly wage increased by 1.7% annually, higher than March's 1.1%. This indicates a slight improvement in consumer purchasing power amid reduced price pressure.

However, the small business confidence index declined for the fourth consecutive month, and the job vacancy rate fell to its lowest level since 2021, indicating potential signs of a slowing job market.

References

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