WASHINGTON (AP) – Last month, President Donald Trump observed a slowdown in major US inflation calculations as his tariffs have yet to significantly impact prices. American spending decreased even with increased incomes, possibly indicating an early reaction to rising costs for some imports.
On Friday, the Commerce Department’s report revealed that consumer prices increased by only 2.1% in April, a slight rise from the previous year’s figure, down from 2.3% in March and the lowest level since September. When excluding the more volatile food and energy sectors, core prices rose by 2.5% year-on-year, a decrease from March’s 2.7% and the lowest in over four years. Economists typically monitor core prices for a clearer picture of inflation trends.
The data indicates that inflation is still retreating from post-pandemic highs which peaked in July 2022 at the highest rate in 40 years. Some economists and business executives have cautioned that prices may rise as Trump’s extensive tariffs take effect, though the timing and effects of these tariffs are now uncertain. A legal decision on Wednesday affected this situation in court.
Month-over-month, overall and core prices saw a modest increase of just 0.1% from March to April. The cost of high-value manufactured goods rose 0.5%, but this was countered by a 0.1% drop in other goods like groceries. Service costs also increased by a mere 0.1% in this period.
A noticeable rise in durable goods prices may indicate the initial effects of tariffs. Notably, Americans curtailed long-term expenditure on factory goods in April, as stated in the report.
Overall consumer spending, including spending on services, climbed 0.2% from March to April, down from a significant 0.7% increase in March.
Economists suggest these spending slowdowns might indicate some consumers are becoming more cautious. Moreover, the spending spike in March may have been driven by consumers purchasing big-ticket items like cars before the anticipated impact of tariffs.
“Preemptive consumer spending ahead of tariff hikes will likely continue to suppress household expenditures, especially as we confront high prices and soft labor markets. We anticipate inflation trends will improve later in the year as businesses will have to pass some of the increased tariffs to safeguard their profit margins,” Kathy Boss Jansick mentioned in an email.
A Walmart executive noted earlier this month that while retail giants are raising prices on many items in May and June due to tariffs, Corie Barry, the CEO of Best Buy, indicated on Thursday that they would increase some prices as a “last resort” in response to obligations.
Elf Beauty, a makeup company that sources 75% of its products from China, announced earlier this week they would raise prices by $1 starting August 1st to counterbalance customs duties.
Furthermore, Costco stated on Thursday that it has already raised prices on certain products while also maintaining others. The company has absorbed tariffs on staples like pineapples and bananas, perceiving it as vital to mitigate their impact. However, it has raised prices on flowers from Central and South America, as they believe customers can manage this increase, according to Millerchip.
Simultaneously, real revenue rose 0.8% in April, largely due to increased Social Security benefits for some retired teachers, firefighters, and federal employees whose prior incomes were not fully accounted for in Social Security benefits.
At their recent meeting on May 6-7, Federal Reserve officials indicated that inflation rates remain elevated compared to their target of 2%. By focusing on core prices, Fed officials largely support stabilizing major interest rates while evaluating the impact tariffs have on inflation and employment.
A court ruling last Wednesday declared that most of Trump’s tariffs were illegal, including duties on imports from Canada, Mexico, China, and over 50 other countries. However, customs duties on steel, aluminum, and vehicles, implemented under different laws, remain in force.
Nonetheless, these tariffs will remain effective while the Trump administration appeals the ruling against them. The authorities have stated they may seek alternative legal bases if necessary to maintain these tariffs. Consequently, the status and duration of these tariffs remain highly uncertain.
Source: apnews.com