Despite Existing Tariffs, Inflation Decreases Again—But Economists Warn It May Not Last

WASHINGTON (AP) – Inflation has eased for three consecutive months as of April. President Donald Trump's tariffs have led economists and various business owners to expect an increase in inflation this summer, but it remains to be seen.

Consumer prices saw a rise of 2.3% in April compared to the previous year, according to the Labor Bureau. This was reported on Tuesday, down from 2.4% in March, marking the smallest rise in over four years. Monthly price changes were modest, with a decrease of 0.1% the previous month and another drop of 0.2% from March to April. This marks the first decline in five years.

Grocery prices dropped by 0.4% from March to April, helping families manage their budgets for essential items. The government indicated that this was the largest decline in home food costs since September 2020. Egg prices saw a significant drop of 12.7%, the largest decrease in 41 years, although they remain 49% higher than the same time last year.

In general, the report indicates that tariffs have not yet had a noticeable impact on the prices of various items. Economists suggest that the effects may start to manifest by June or July. A 10% tariff on all goods was implemented on April 5, which could take two to three months before inflation data reflects its impact. Many companies had stockpiled products earlier this year, moderating price increases in anticipation of a cooling trade conflict.

The report from Tuesday highlights that costs for mostly imported clothing fell by 0.2% during the March to April period. The prices for new cars remained stable, while food prices decreased despite concerns that tariffs on certain goods from Mexico would hike up costs.

“The effects of the tariffs are just beginning to be felt,” said Laura Rosner-Warburton, co-founder of the Macropolicy Perspective and a former economist with the New York branch of the Federal Reserve. “We will likely see more changes in May, June, and July, and many price increases are already on the horizon.”

Initial signs indicate that tariffs are starting to impact some sectors. Computer prices rose by 0.3% from March to April; this category usually experiences a slight price reduction as it is heavily imported from China. Prices for sports goods and toys, which include many imported products, have also risen. Additionally, categories such as strollers and car seats have seen price hikes.

Excluding the fluctuating food and energy sectors, core prices also stabilized, increasing by 2.8% in April compared to a year ago, reflecting a mild monthly increase of 0.2%. Economists often track core prices to provide a clearer picture of inflation trends.

Rosner-Warburton noted that some prices have decreased as demand weakened, particularly in the travel sector. Airfares and hotel prices significantly dropped last month, contributing to an overall decline in inflation, possibly exacerbated by a drop in foreign visitors to the U.S.

Some companies are raising their prices, while others plan to do so as a response to tariffs. Mattel Inc., the manufacturer behind Barbie dolls and Hot Wheels cars, noted earlier this month that price hikes on some products will be necessary, given that 40% of its products are made in China.

Stanley Black & Decker, a tool manufacturer, mentioned in April that they had increased their prices and plan to do so again in the July to September quarter due to high tariffs. Additionally, executives from Procter & Gamble, which produces well-known brands like Crest Toothpaste, Tide Detergent, and Charmin Toilet Paper, stated last month that consumers might expect higher prices soon, likely in July.

Only some of the initial tariffs imposed by Trump took effect in April, including a 25% tariff on steel and aluminum, and a similar charge on imports from Canada and Mexico. Trump’s first 20% import tax on goods from China was also implemented. The effects of steel and aluminum tariffs may not reflect in retail prices for several months, as products like cars require time to impact pricing.

Trump's significant 145% import tax on Chinese goods is the deal announced on Monday, which included numerous tariffs during a 90-day suspension. Retailers and importers have largely ceased shipping, despite the high tariff rate affecting a variety of items, including shoes, clothing, and toys. Resumption of imports from China is now expected, which should lessen the likelihood of empty shelves this fall.

However, in addition to other import duties, an extra 30% levy may impact prices. A trade group representing U.S. footwear distributors and retailers reports that children's shoes from China are essentially facing tariffs close to 100%.

According to FDRA President and CEO Matt Priest, the cost of transporting items from China is likely to rise, as companies are rushing to secure orders during the 90-day window.

“We haven't emerged from the forest of inflation costs yet,” he stated.

Economists say that the average tariff now hovers around 18%, roughly six times higher than before Trump assumed office, marking the highest levels seen in nearly 90 years.

Consumer prices dropped sharply in February and March, prompting Trump to frequently assert on social media that inflation was nonexistent. Inflation has approached the nearly 2% target set by the Federal Reserve, the body tasked with combating rising prices.

The Fed could have resumed interest rate reductions were it not for tariffs, as inflation was on a downward trend. Last year, the agency saw its benchmark rate cut three times. However, it has since remained on hold, waiting for additional evidence regarding tariffs and other policy changes, such as immigration constraints and potential tax adjustments, and their implications on the economy.

Lower tariffs on Chinese goods tend to mitigate damage to the U.S. economy, but along with existing tariffs, economists anticipate that growth will decelerate and inflation will worsen this year.

For instance, Yale's Budget Lab estimates that tariffs will increase prices by 1.7%, costing the average household approximately $2,800 this year.