In April, inflation was largely unchanged, with the Commerce Department reporting a 0.1% increase in the personal consumption expenditures price index, keeping the annual inflation rate at 2.1%, the lowest in 205. This aligned with the Dow Jones consensus forecast. The core inflation rate, excluding food and energy, rose 0.1% monthly and 2.5% annually, slightly below expectations, indicating a cautious consumer trend. Consumer spending slowed to a 0.2% increase, down from 0.7% in March, while the personal savings rate jumped to 4.9%.
Personal income grew by 0.8%, surpassing forecasts. Food prices fell 0.3%, whereas energy prices rose by 0.5%. Shelter costs, a key inflation component, saw a 0.4% increase. Markets showed minimal reaction, with stock futures pointing lower and mixed Treasury yields. President Trump has been advocating for the Federal Reserve to lower interest rates as inflation nears the 2% target, but Fed officials are cautious, waiting to assess the long-term effects of recent trade tariffs.
Economists warn that tariffs could lead to higher inflation, despite historical evidence suggesting limited impact. Following Trump’s imposition of 10% tariffs on U.S. imports to address a record trade deficit, his administration is now seeking a 90-day negotiation period instead of implementing harsher tariffs. Meanwhile, an international court has challenged the legitimacy of these tariffs, and economists express concern over potential stagflation, characterized by rising prices and slow growth, reminiscent of economic conditions from the early 1980s.
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