Prices are cooling even though President Trump’s trade war is dragging on and businesses keep threatening to raise their prices in response to it.
The personal consumption expenditures (PCE) price index fell to a 2.1-percent annual increase in April, down from 2.3 percent in March and 2.6 percent in April, the Commerce Department reported Friday.
Removing the more volatile categories of food and energy, PCE prices fell to a 2.5-percent increase.
“The impact of tariffs is once again missing from the inflation report,” Scott Helfstein, head of investment strategy at financial company Global X, said in a commentary.
“Each month we keep trying to assess whether tariffs are going to drive inflation higher, but the pauses keep pushing the prospect of higher prices further out,” he wrote.
White House trade policy went through another major turnaround this week.
Trump’s wide-ranging emergency tariff powers, encompassing his national security tariffs and novel “reciprocal” tariffs, were struck down by a court on Wednesday before immediately being reinstated by a higher court on Thursday.
Cooling PCE inflation follows a similar pattern in the consumer price index (CPI), another pricing benchmark.
After ticking up through the fall, the CPI has fallen throughout the first quarter of this year, dropping down to a 2.3-percent annual increase from 3 percent in January.
U.S. consumers and businesses are showing themselves to be highly attuned to all the policy changes, which are coming fast and furious from the White House.
After Trump’s trade war tanked consumer and business sentiment earlier this year, importers executed a massive pull-forward in orders, leading to a 0.3-percent contraction in first-quarter gross domestic product (GDP).
Consumers followed suit, increasing spending on automobiles by a whopping 57 percent in March ahead of expected tariffs.
Now, just as businesses are holding off on making investments and capital expenditures, consumers are holding off on making purchases amid continued policy fluctuations.
The April PCE report showed spending increasing by just 0.2 percent last month while the personal saving rate increased to 4.9 from 4.3 percent in March.
“There is clear evidence that consumers are battening down the hatches, with data showing the highest savings rate since May 2024. However, robust disposable income growth bodes well for future spending,” Olu Sonola, head of U.S. economic research at Fitch Ratings, commented.
Sustained hesitance from consumers in response to policy ambiguity could work against the many inflationary prognostications now swirling about the economy, driving down price pressures even as tariffs threaten to raise them.
The minutes of the latest Federal Reserve meeting painted a stagflationary picture of the economy, with bankers voicing concerns about higher prices, lower output levels, and increased unemployment.
“Tariffs were expected to boost inflation markedly this year,” the minutes say – an increase that has yet to materialize.