April’s CPI print just came in: +0.2% MoM, +2.3% YoY—the lowest since early 2021. Core CPI? Also +0.2% for the month, +2.8% YoY. That’s a soft landing if you squint hard enough and ignore a few freight trains heading your way.
So, what’s really going on?
Inflation: Calm Surface, Choppy Undercurrents
Shelter inflation, which makes up a third of CPI, rose 0.3% and was responsible for more than half of the total increase. Strip that out, and April’s number starts to look even tamer. Egg prices crashed -12.7%, but they’re still up a jaw-dropping 49.3% YoY.
Used car prices are sliding. Apparel costs are down. But medical services, rent, and insurance? Still climbing.
What’s that smell? Stagflation-lite, with a side of Fed paralysis.
Tariff Whiplash: From Firestarter to False Alarm
Trump’s tariff rollercoaster isn’t helping. After spiking effective rates on Chinese goods to 125% in early April, the White House walked it all back with a 90-day truce—slashing tariffs by 115 points.
Markets cheered. Economists facepalmed.
The impact of tariffs on prices is lagged, but survey data already shows firms passed on those costs—before the rollback. ISM, S&P Global, Fed regional indexes… all flashed hotter prices received in April. Then CPI hit, and reality disagreed.
Soft data inflated, hard data deflated. Call it the great macro disconnect.
Markets Shrug, Fed Smirks
Equities barely flinched. Treasuries wobbled. Futures pricing for Fed rate cuts pushed back to September from June. The case for easing? Weaker now that CPI is sub-2.5%, and Powell’s favorite core PCE likely to follow.
But don’t get comfortable. CPI may have dipped, but supply-side shocks (tariffs, energy, wage stickiness) haven’t gone anywhere.
Inflation Expectations: All Over the Map
While hard CPI data cooled off, survey-based expectations (UMich, ISM) screamed inflation. A political narrative? Maybe. An analytical mess? Definitely.
Add to that a Bloomberg inflation surprise index that cratered in April—suggesting Wall Street was blindsided. Again.
TL;DR: The Machines Saw 2.3%, But Humans Should See This:
- Headline CPI: 2.3% YoY (lowest since Feb 2021)
- Core CPI: 2.8% YoY (inline, but sticky)
- Tariffs: Pulled back just in time to confuse the macro picture
- Shelter inflation: Still driving more than half of CPI gains
- Supercore (ex-shelter services): 3.01%, lowest since Dec 2021
- Market reaction: Muted