New Inflation Report Released

Inflation remained subdued in April, with the Federal Reserve’s preferred gauge—the personal consumption expenditures (PCE) price index—rising just 0.1% for the month and 2.1% year-over-year, according to data released Friday by the U.S. Commerce Department. This is the lowest annual inflation rate recorded since 2022 and comes as consumer spending cooled sharply and savings surged to near 12-month highs.

Key Metrics:

  • Headline PCE Inflation (monthly): +0.1%

  • Headline PCE Inflation (yearly): +2.1%

  • Core PCE Inflation (monthly): +0.1%

  • Core PCE Inflation (yearly): +2.5%

  • Consumer Spending (monthly): +0.2% (down from +0.7% in March)

  • Personal Income (monthly): +0.8% (above the 0.3% forecast)

  • Savings Rate: 4.9% (up 0.6 points from March)

Core inflation, which strips out food and energy, also came in at 0.1% for the month—matching expectations—but stood slightly below forecasts on an annual basis (2.5% vs. 2.6%). The figures suggest that price pressures remain contained, at least for now.

Americans sharply curtailed their spending in April, with consumer outlays growing only 0.2%, a major drop from the 0.7% surge in March. The slowdown coincided with a jump in the personal savings rate to 4.9%, the highest since mid-2024, suggesting a shift toward more cautious household financial behavior.

Although President Donald Trump enacted across-the-board 10% tariffs on U.S. imports earlier in the month—part of a broader trade strategy to reduce a record $140.5 billion trade deficit—those costs have yet to materialize in consumer prices. Economists warn that the real inflationary effects of tariffs may only begin to show later in the year.

“Much bigger increases in core goods inflation probably loom as the costs of the new tariffs are eventually passed on,” said Oliver Allen, senior economist at Pantheon Macroeconomics. He projects core PCE could peak at 3.0%–3.5% if the current tariff regime remains.

Despite the president’s public pressure campaign urging lower interest rates, the Federal Reserve has opted to keep policy unchanged. Officials are awaiting clearer signals on the economy and particularly on the inflationary effects of tariffs.

Trump and Fed Chair Jerome Powell met for the first time since Trump began his second term, but a Fed statement afterward clarified that monetary policy was not discussed and would remain politically independent.

In a twist, an international court recently ruled Trump’s tariffs unlawful, arguing he overstepped executive authority and failed to prove national security concerns. However, the administration secured a temporary stay from a federal appeals court, allowing the tariffs to remain in place while legal challenges continue.

While economists caution that tariffs could trigger inflation, historical evidence suggests their actual impact may be modest unless compounded by supply shocks or wage pressures.

Still, Fed officials voiced concern at their last meeting that price instability combined with a softening labor market could lead to stagflation, a scenario not seen since the early 1980s.