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Consumer price index increases 0.2% in April

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Egg prices tumble 12.7%, weighing on food costs

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Core CPI rises 0.2%; up 2.8% on year-over-year basis

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Few signs of tariffs impact; duties hit expected by

mid-year

By Lucia Mutikani

WASHINGTON, May 13 (Reuters) - U.S. consumer prices

rebounded moderately in April as declining food costs partially

offset rising rents, leading to the smallest annual increase in

four years, but the inflation outlook remains unclear against

the backdrop of tariffs.

The rise in prices reported by the Labor Department on Tuesday

was below economists' expectations and showed little impact from

President Donald Trump's sweeping import duties, whose impact

economists expected to become evident by the middle of this

year.

The data suggested price pressures were cooling before

Trump's chaotic tariffs policy and did not change economists'

views that the Federal Reserve would continue to pause its

interest rate-cutting cycle until late in the summer.

Though the U.S. and China took a major step towards

de-escalating their trade war over the weekend with a 90-day

truce, a 10% blanket duty on almost all imports remains in

place. Sectoral tariffs also continue to be levied.

"Improvements in global trade will provide some clarity on

the future path of inflation," said Jeffrey Roach, chief

economist at LPL Financial. "However, the uncertainty about what

might happen after these temporary trade deals makes things

difficult for the Fed since stagflation remains a risk. If the

fog does not clear, the Fed might not be able to adjust policy

in June."

The Consumer Price Index increased 0.2% last month after dipping

0.1% in March, which was the first decline since May 2020, the

Labor Department's Bureau of Labor Statistics said. Economists

polled by Reuters had forecast the CPI would rise 0.3%. Shelter,

which includes rents, rose 0.3% and accounted for more than half

of the increase in the CPI.

That jump following a 0.2% gain in March was partially offset by

a 0.1% decline in food prices, which followed a 0.4%

acceleration in March. Grocery store prices decreased 0.4%, the

largest decline since September 2020, pulled down by a 12.7%

drop in the cost of eggs, the biggest drop since 1984.

Egg prices, which experienced sharp increases over the past

year and were cited as one of the factors contributing to voter

discontent during the last presidential election, surged 49.3%

from a year ago. Fruit and vegetable prices fell last month as

did those for cereals and bakery products.

Prices for nonalcoholic beverages, however, increased 0.7%.

Gasoline prices eased 0.1%, though consumers faced higher

costs for natural gas and electricity.

In the 12 months through April, the CPI climbed 2.3%. That was

the smallest gain since February 2021 and followed a 2.4%

advance in March. There was little sign that tariffs, including

a doubling of fentanyl-related taxes on all Chinese imports to

20% and a 25% levy on imported cars and light trucks, imposed

before Trump's April 2 "Liberation Day" announcement, had

boosted prices. Country-specific tariffs have been delayed until

July.

Businesses boosted inventories in the first quarter ahead

of the tariffs, which could account for tame price rises.

"With the economy having inventory of about 3.7 months of

sales on hand, we expect the impact of tariffs on prices to

begin to materialize by the middle of the year," said Conrad

DeQuadros, senior economic advisor at Brean Capital.

TARIFFS EXPECTED TO BOOST PRICES

The Trump administration has agreed to slash duties on

Chinese goods to 30% for the next 90 days. Tariffs on U.S. goods

imported into China would decline to 10% from 125%.

Nonetheless, the Budget Lab at Yale said this year's

tariffs implied a 1.7% increase in consumer prices in the

short-run, in the absence of policy reaction from the U.S.

central bank, the equivalent of a loss of purchasing power of

$2,800 per household. Consumers' inflation expectations also

have soared.

Financial markets continued to expect that the Fed would

resume cutting rates in September. The central bank last week

kept its benchmark overnight interest rate unchanged in the

4.25%-4.50% range.

Stocks on Wall Street traded mostly higher. The dollar

slipped against a basket of currencies. U.S. Treasury yields

were slightly higher.

Excluding the volatile food and energy components, the CPI

rose 0.2% last month after gaining 0.1% in March. The so-called

core CPI inflation was lifted by the higher shelter costs, which

reflected a 0.4% advance in owners' equivalent rent. That more

than offset a 0.1% drop in the cost of hotels and motel rooms.

Prices for household furniture jumped 1.0% and prescription

medication rose 0.4%. They were eclipsed by cheaper apparel,

toys, games, hobbies and playground equipment as well as used

cars and trucks. New motor vehicle prices were unchanged. Data

from Cox Automotive's Kelley Blue Book, however, showed prices

more than doubled in April.

Core goods prices edged up 0.1% after dipping 0.1% in March.

There were increases in the cost of motor vehicle insurance and

healthcare. But airline fares extended their slide, falling 2.8%

amid declining tourist and corporate travel.

The core CPI increased 2.8% on a year-on-year basis in April,

matching the rise in March. Based on the CPI data, economists

estimated the core Personal Consumption Expenditures (PCE) Price

Index increased 0.2% in April after being unchanged in March.

That would keep the annual increase in core PCE inflation at

2.6% in April. Producer price data for April due out on Thursday

could impact these estimates.

The core PCE price index is one of the inflation measures

tracked by the Fed for its 2% target.

"Even with the recent agreement between the Trump

administration and China to reduce the most onerous import

taxes, tariffs against all U.S. trading partners are much higher

than they were at the beginning of 2025," said Gus Faucher,

chief economist at PNC Financial. "Those higher tariffs will

work their way into consumer goods prices over the next few

months, pushing inflation back up."