The current market focus is on the narrative of tariff easing. Tonight's CPI data may slightly reflect the transmission effects of tariffs, but this could just be the calm before the storm, as most of the tariff impacts will be felt in June and July.
At 20:30 Beijing time on Tuesday, the U.S. Bureau of Labor Statistics will release the April Consumer Price Index (CPI) report. According to economists surveyed by Bloomberg:
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The U.S. April CPI is expected to increase by 0.3% month-on-month, up from a decrease of -0.1% a month ago. Meanwhile, the core CPI, excluding food and energy, is expected to rise by 0.3% month-on-month, also higher than the 0.1% increase in March;
Year-on-year, the April CPI is expected to be 2.4%, unchanged from March; the core CPI year-on-year is also expected to rise by 2.4%, consistent with March.
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The key question is whether the April CPI will reflect the transmission effects of tariffs. Deutsche Bank believes that it may be too early to see the impact of tariff price increases in April, and suggests focusing on some categories with large import volumes, such as clothing, home goods, and daily necessities, to see if there are any early signs.
Additionally, food prices may also be another area to observe early signs of tariffs. Consumer prices began to rise two months after the tariffs took effect in 2018, and the price increases were almost entirely passed on to consumers. Notably, the forecast range for the April core CPI is unusually wide, with a high of 0.6 and a low of 0.0.
<h2>Signs of Tariff Impact Emerging? Focus on These Key Areas</h2>
Previously, a model from Wall Street economists indicated that a 10% universal tariff could push inflation up by about 0.3 percentage points in the short term. Research from the Boston Fed estimates that tariff measures could raise the core inflation rate by 0.5%-0.8%, which means core inflation could rise back above 3%.
Regarding the performance of the April CPI, Goldman Sachs expects the overall CPI to rise by 0.31% in April (consensus is +0.3%), reflecting increases in food (+0.3%) and energy (+0.4%) prices. The firm emphasizes the trends in four key components:
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1. Tariff Effects: Goldman Sachs expects tariffs to exert moderate upward pressure on particularly sensitive categories, contributing +0.06 percentage points to core inflation. This could push up prices for clothing (+0.8%), furniture (+0.3%), education (+0.4%), and communications (+0.3%).
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Automobile Prices: Used car prices are expected to decline by 0.5%, while new car prices may rise by 0.1%, reflecting reduced promotional incentives from dealers due to tariffs. Auto Insurance: April auto insurance prices are expected to rise significantly (+0.7%), reflecting increased premiums. High car prices, rising repair costs, and increased medical and litigation costs are driving insurers to raise prices.
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Health Insurance: The April CPI report will include semi-annual updated data for the health insurance component, and Goldman Sachs expects this will lead to negative health insurance inflation over the next six months (April forecast is -0.5%).
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Regarding the transmission effects of tariffs, Deutsche Bank believes it may be too early in April, but suggests investors closely monitor price changes in import-intensive categories such as clothing and home goods, as well as food categories where tariffs began to be implemented in February this year. Notably, looking back at the early washing machine tariffs in 2018, their effects only began to appear in CPI data about two months after implementation
In addition to tariffs, the current inflation pattern has multiple complex factors. Economists at Nationwide stated that stable gasoline prices in the April report will boost the overall CPI, while softening rental prices will also lift the core CPI. BMO Capital Markets economists indicated that used car prices may elevate the core CPI.
Looking ahead, according to market analyst Sharif, the price increases caused by tariffs will largely manifest in June and July, &#34;this is a summer story.&#34; He noted that if tariffs on most Chinese goods remain at 30%, the year-on-year increase in core CPI could peak at 3.5%.
<h2>The Fed's Dilemma and Market Reaction</h2>
The inflation rebound triggered by tariffs will directly challenge the Federal Reserve's policy path, with some Fed officials clearly stating that they will not cut rates until they feel that the inflation caused by tariffs has peaked.
Sharif mentioned that officials might be able to detect a cooling in goods inflation before August. However, by then, the Fed must be wary of inflation rising in the service sector, which includes various services from haircuts to lawn mowing. It is worth recalling that in 2021, the inflation rate in the service sector surged, having a lasting impact on overall inflation metrics.
Regarding market reactions, Goldman Sachs believes that given the current market's optimistic sentiment towards tariff easing, the market may become insensitive to any surprises in CPI in either direction.
Goldman Sachs analyst Ronnie Walker predicts:
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The impact of tariffs will begin to reflect in this week's CPI data, with tariffs potentially exerting about 6 basis points of upward pressure on core CPI, particularly pushing up prices for electronic consumer goods and clothing.
However, the market's interpretation of CPI data may exhibit asymmetry: if inflation data appears stable, it could either mean that the impact of tariffs on consumer prices is less than expected or that the effects of tariffs have not fully materialized. Considering the recent easing of tariff policies, the market may become insensitive to any surprises in CPI data in either direction.
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Karen Fishman believes that changes in policy may have altered the market's interpretation of data. Previously, the market may have been more inclined to underestimate upside surprises in macro data, whereas now, it may be more inclined to underestimate downside surprises

The U.S. April CPI is expected to grow by 0.3% month-on-month, with core CPI rising by 0.3% month-on-month. The impact of tariffs may be reflected in areas such as clothing, household goods, and communications, but most of the tariff impact is expected to materialize in June and July. Given the current market's optimistic sentiment towards tariff easing, the market may be insensitive to any unexpected movements in CPI

- The focus of the market is on the narrative of tariff easing, with the upcoming CPI data expected to show slight effects from tariffs, although significant impacts may not be seen until June and July.  
- The April CPI report is anticipated to show a 0.3% increase, with core CPI also rising by 0.3%, reflecting pressures from tariffs on sensitive categories like clothing and household goods.  
- The inflation rebound due to tariffs poses challenges for the Federal Reserve, which may delay interest rate cuts until inflation peaks, while market reactions to CPI data may be muted due to current optimism about tariff reductions.

The U.S. April CPI may show signs of tariff impact, is the real inflation storm coming in the next two months?