Background on Inflation and its Key Components
Inflation in the United States (US) has slowed for the third consecutive month in April, according to a recent report from the Department of Labor. The Consumer Price Index (CPI) stood at 2.3% annually, down from March’s rate and marking the lowest level since February 2021 when the COVID-19 pandemic still posed significant challenges to the economy.
The CPI is now just three tenths of a percentage point away from the Federal Reserve’s (Fed) 2% target.
Energy Costs and Their Impact
Energy costs fell by 3.7% over the twelve months ending in April, with gasoline experiencing the largest decline of 11.8%. Meanwhile, natural gas and electricity saw price increases of 15.7% and 3.6%, respectively.
Subjacent Inflation
Excluding volatile food and energy prices, subjacent inflation rose by 2.8% annually—the same rate as in March.
Anticipated Inflation Trends
The April inflation figures were anticipated, as they followed President Donald Trump’s announcement of tariffs on most US trading partners on April 2. Trump dubbed this date as “Liberation Day.”
Despite postponing specific tariffs until July and a recent 90-day trade truce between the US and China, a general 10% tariff remains on all imports to the US, along with a 25% tariff on non-T-MEC covered products.
“This might be the lowest point of inflation this year. As trade tariff costs increasingly reflect in consumer prices, we expect the CPI to rise this summer, pushing the annual reading back above 3%,” said Ben Ayers, senior economist at Nationwide, as quoted by AFP.
Trump’s Continued Criticism of the Fed
Following the release of the inflation data, President Trump once again criticized the Fed and its chairman, Jerome Powell, urging the central bank to lower interest rates.
“No Inflation, and Gasoline, Energy, Food, and virtually everything else HAVE ALL DROPPED!!! The Fed must lower the rate, as Europe and China have done,” Trump posted on Truth Social.
“What’s wrong with Too Late Powell? Isn’t it fair for America, which is ready to thrive? Just let everything happen, and it will be beautiful!” Trump added.
The Fed’s next monetary policy meeting is scheduled for June 17 and 18.
Key Questions and Answers
- What is the current inflation rate in the US? The annual inflation rate slowed to 2.3% in April.
- Which components of the CPI saw price drops? Gasoline prices dropped by 11.8%, while natural gas and electricity experienced price increases of 15.7% and 3.6%, respectively.
- What is subjacent inflation? Subjacent inflation excludes volatile food and energy prices, rising to 2.8% annually in April.
- Why is Trump urging the Fed to lower interest rates? Trump believes that with declining prices for gasoline, food, and other goods, the Fed should lower interest rates to support economic growth.
- When is the Fed’s next monetary policy meeting? The Fed’s next meeting is scheduled for June 17 and 18.
