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May 13, 2025

The consumer price index rose 0.2% in April after falling 0.1% in March. That translates to a 2.3% increase from a year ago, down a tick from the 2.4% annual gain of March.

A moderation in food prices was helped by a drop in prices at the grocery store. Food away from home continued to rise. Gains were driven by a pop in full-service restaurants, an increase in prices at vending machines and mobile vendors. That sector is now up 6.5% from a year ago and has accelerated in recent months.

Energy prices moved up by 0.7% during the month. A sharp, double-digit increase in natural gas prices more than offset a double-digit decline in prices at the gas pump.

The core CPI, which strips out the volatile food and energy components, rose 0.2% in April after moving sideways in March. That translates to a 2.8% gain from a year ago, the same as March.

Goods prices moderated, with a drop in nondurable goods prices offsetting an increase in big-ticket items. Many retailers, especially in the fast fashion space, discounted existing inventories to bolster their cash cushion ahead of tariffs. That is an area that was able to escape tariffs due to the de minimis loophole: that is goods worth less than $800.  That loophole has been closed.

New and used vehicle prices remained subdued. However, a rush to buy ahead of tariffs depleted inventories of new and used vehicles. That front-running by consumers, who have learned to hedge against price hikes, is its own self-fulfilling prophecy; it will add to the upward pressure on prices due to tariffs in the months to come.

Large appliances and furniture picked up in price during the month. That no doubt reflects the tariffs in place prior to the April 2 announcement. Inventories are slim, while tariffs started to show up via steel, aluminum and an additional 20% tariff on China.

The recent move to roll back tariffs on China to 30% from 145% is triggering a rush to get orders out of warehouses abroad during the 90-day pause. The challenge is for those who did not store goods abroad. The pandemic taught us that factories are easier to idle than to ramp up.

Those disruptions, coupled with a surge in shipping costs, will put upward pressure on costs. Margins are thin, especially among retailers and small businesses. Small business sentiment dropped again in April; the National Federation of Independent Business (NFIB) index has now erased the bump in confidence post-election.

Service sector prices still elevated

Shelter costs rose 0.3%, a tick higher than in March.  Apartment rents and owners� equivalent rent rose 0.3% and 0.4%, respectively. Hotel room rates continue to fall and are now down 2.3% from a year ago. The latter reflects a pullback in discretionary travel.

Services excluding shelter rose 0.3%, the same as last month. Gains in medical costs, which are in the crosshairs of tariffs and curbs on immigration, moved up especially for outpatient care. Daycare and eldercare costs moderated but continue to grow at double or more the overall inflation rate on an annual basis.

Airfares continued their descent. High-end discretionary travel and business travel have held up better than travel by low- and middle-income households. Economy fares are driving the drop in airfares. Cruises have become cheaper despite a jump in bookings going into 2025. Last year was a record for the cruise industry.

Admissions to sporting events tumbled 12.2% but were still up over 9% from a year ago. That drop was tempered by a 1.1% jump in concert tickets.

The service sector is not immune to tariffs. Vehicle repairs and insurance jumped during the month. Parts subject to tariffs are already rising in cost. Those increases will add to the upward pressure on insurance premiums due to a surge in bad weather events. The damages from a rise in hailstorms and tornados are pushing up insurance costs more than large natural disasters.

Restaurants are dependent on imports, more than many realize. Everything from food and spirits to appliances, dishes, silverware and packaging for carryout is poised to rise in price. Low- and middle-income consumers have begun to pull back on dining out, notably at fast-food franchises.

The preliminary data in the CPI suggests that the Federal Reserve’s favored inflation measure, the PCE index, will rise a tepid 0.1% in April. The remaining components are due out with the producer price index later this week. If we didn’t have tariffs in the pipeline, the Fed would no doubt be cutting interest rates by now.

The lessons of the pandemic and the stagflation of the 1970s � a toxic mix of escalating prices and unemployment � are clear. It is better to hold off in the face of supply shock. Any increase in employment via stimulus is quickly reversed by a flare in inflation.