In Washington, the inflation rate saw a decline for the third consecutive month in April despite the implementation of some tariffs by the Trump administration. However, many economists and business owners anticipate a rise in inflation by summer.
According to the Labor Department, consumer prices experienced a 2.3% increase in April compared to the previous year, slightly down from the 2.4% rise in March, marking the smallest increase in over four years. On a monthly basis, prices exhibited modest growth, climbing by 0.2% from March to April, after having declined by 0.1% in the previous month, which was the first drop in five years.
A notable decrease in grocery prices, down by 0.4% from March to April, provided some financial relief for families striving to manage basic expenses. This marked the largest decline in household food costs since September 2020, with egg prices plummeting by 12.7%, the most significant fall in 41 years, yet they remain 49% higher than the previous year.
Overall, the report indicates that many goods have not yet seen price impacts from tariffs. Economists speculate that the effects will likely become apparent by June or July. The 10% tariff implemented on all goods starting April 5 may require two to three months to fully reflect in the inflation data. Additionally, numerous companies have stockpiled supplies earlier in the year, offering them the ability to delay price increases while hoping the trade tensions ease.
The prices of clothing, predominantly imported, dropped by 0.2% from March to April, while prices for new cars remained unchanged. Groceries saw a dip in prices despite concerns that tariffs on certain Mexican goods might lead to higher food costs.
โItโs early days for tariff effects,โ stated a co-founder of MacroPolicy Perspectives. โMore will come in May, June, and July. There are plenty of price increases already scheduled and on the way.โ
Initial indicators suggest some influence from the tariffs. Computer prices rose by 0.3% from March to Aprilโa category heavily reliant on imports from China where prices traditionally decrease. Similarly, sporting goods and toys, many of which are imports, saw price hikes. Items such as baby strollers and car seats saw elevated costs as well.
When disregarding volatile food and energy categories, core prices saw a restrained rise, registering a 2.8% increase in April year-over-year, consistent with March figures. On a monthly basis, they rose modestly by 0.2%. Core prices often serve as a more reliable indicator for future inflation trends.
Some prices saw a downturn as various sectors, notably travel, struggled. Airline fares and hotel rates fell last month, contributing to the decrease in inflation, possibly attributable to a drop in international tourists to the U.S.
Certain companies have already hiked prices or announced intentions to do so due to tariffs. Mattel Inc., the producer of Barbie dolls and Hot Wheels cars, revealed a plan to raise prices on specific products as 40% of their products are China-made. Tool manufacturer Stanley Black & Decker increased prices in April and intends further hikes in the third quarter due to heightened tariffs. Executives at Procter & Gamble highlighted expected price increases for household staples like Crest toothpaste, Tide detergent, and Charmin toilet paper by July.
Only a portion of Trumpโs initial tariffs were active in April, including a 25% tariff on steel and aluminum, and on some imports from Canada and Mexico. Early 20% tariffs on Chinese imports also remained. The impact of steel and aluminum tariffs on consumer products, such as vehicles, could take months to materialize in retail prices.
Recently, Trump announced a reduction in the massive 145% import taxes on Chinese merchandise to 30%, with some enhanced tariffs paused for 90 days. Retail and import companies that had halted shipments of footwear, clothing, toys, and other products due to high tariffs are expected to resume importing from China. This shift could lower the likelihood of product shortages in the upcoming fall season.
Still, the additional 30% duties, on top of existing import taxes, will likely influence pricing. A group representing footwear distributors and retailers noted that tariffs on childrenโs shoes from China would now effectively reach nearly 100% due to the latest duties coming on top of previous import taxes.
The president of this trade group remarked on the anticipated rise in shipping costs from China as companies strive to dispatch orders during the 90-day grace period.
Economists estimate average tariffs at about 18%, nearly six times the rate before Trumpโs presidency, the highest in roughly 90 years.
Consumer prices saw a marked deceleration in February and March, prompting Trump to repeatedly declare โNO INFLATIONโ on social media. Inflation rates have almost reached the Federal Reserveโs 2% target, the body responsible for countering high prices.
In response to the declining inflation, the Fed would typically consider cutting interest rates, a move it initiated three times the previous year. However, the Fed has opted to freeze rates for now, waiting for further evidence on the implications of tariffs and other policy shifts, such as restrictive immigration policies and potential tax cuts, on the economy.
While smaller tariffs on Chinese goods may mitigate impacts on the U.S. economy, combined tariffs are expected to dampen growth this year and exacerbate inflation.
A budget lab estimates that the cumulative tariffs could elevate prices by 1.7% and impact the average householdโs budget to the tune of around $2,800 this year.
โThis is still a very significant tariff increase, but it may take a while to fully appear in the inflation data,โ commented an economist.
Many small businesses express relief over lowered tariffs on Chinese imports, yet remain uncertain about their costs for the remainder of the year and whether they can avoid raising prices themselves.
An educational toy company CEO expressed concerns that previous high tariffs would have inflated the companyโs tariff costs dramatically. Although shipments and production were put on hold, efforts are underway to navigate the lowered tariffs. Some goods have been stockpiled in U.S. warehouses, potentially deferring duty payments.
โWeโre uncertain about our overall tariff and freight costs,โ he remarked.