Inflation lower than expected, defying doom and gloom predictions on Trump tariffs

Data released by the U.S. Bureau of Labor Statistics (BLS) showed inflation came in lower than expected in April.

The Consumer Price Index (CPI) Summary reported that inflation rose a seasonally adjusted 0.2% compared to a Wall Street consensus estimate of 0.3%.

That means in the last 12 months, inflation has risen 2.3% versus expectations of 2.4%.

“The April change was the smallest 12-month increase in the all items index since February 2021,” said the BLS report. “The all items less food and energy index [also known as core inflation] rose 2.8% over the last 12 months.”

The 2.8% core inflation reading was in line with expectations.

The numbers forced the media to back off the narrative that Trump’s tariff policy would fuel a round of explosive inflation.

MarketWatch reported Monday that consumer prices would rise in April “as higher tariffs began to bite.”

Barron’s reported prior to the release of the inflation data that the markets should expect some tariff related increases.

But as ABC News was forced to admit, the doom and gloom predictions didn’t come to pass.

That’s in part because energy prices, a key component to inflation, have come down radically under Trump since February, the BLS report showed.

Energy prices on an unadjusted basis have come down 3.7% year-over-year, largely fueled by a reduction in gasoline and fuel oil.

Gasoline fell 11.8% over 12 months, with a decrease of 6.5% since February.

Another item of note was the price of new vehicles, which showed zero inflation thus far under Trump, after rising 16% during the Biden administration.

Auto prices were expected to be especially hard hit by the Trump tariffs, which went into effect for Canada and Mexico at the beginning of April.

However, used vehicle prices went down substantially in April (0.5%). Also, apparel was down 0.2%, food at home fell 0.1%, and food away from home was down 0.4%, according to the BLS.  

One sore spot in the BLS inflation data is piped natural gas prices, which climbed 3.7%.

The market mildly rallied on the inflation data, after shooting up 3.3% on Monday as news broke that China and the U.S. had reached a tentative deal on trade.

The U.S.-Sino trade deal caused several investment firms to upgrade the 2025 outlook for the stock market and the economy.

Goldman upgraded its target on the S&P 500 from 6,200 to 6,500 for the year, implying an 11% gain.

JPMorgan Chase said the risk the U.S. would go into a recession due to the trade deal is now reduced to less than 50%.

“The administration’s recent dialing down of some of the more draconian tariffs placed on China should reduce the risk that the US economy slips into recession this year,” JPMorgan Chief U.S. Economist Michael Feroli said Tuesday in a note, according to Bloomberg. “We believe recession risks are still elevated, but now below 50%.”

The Atlanta Federal Reserve’s most recent forecast for quarterly economic growth (GDP) for the second quarter of 2025 is currently at 2.3% growth, up slightly from a previous forecast of 2.2%.

GDP fell in the first quarter largely on a surge of imports in anticipation of the tariffs going into effect.

Still, the economy has added 572,000 jobs since January, while unemployment has remained static as more people have entered the workforce.

Those numbers are hardly consistent with recessionary conditions.

In January, 44% of all economists polled by the World Economic Forum expected “strong growth” from the U.S. economy in 2025, despite the trade worries. That’s up from the 15% who predicted strong growth for the year in August 2024.