In April, the U.S. Consumer Price Index (CPI) increased by 2.3% year-on-year, marking the third consecutive month of growth below expectations and the lowest level since February 2021. Nevertheless, the impact of tariffs has not yet fully manifested, and businesses may be digesting inventory.On Tuesday, May 13, the U.S. Bureau of Labor Statistics released the April CPI data:<blockquote><ul><li>CPI increased by 2.3% year-on-year, expected 2.4%, previous value 2.4%;</li><li>CPI increased by 0.2% month-on-month, expected 0.3%, previous value -0.4%;</li></ul><img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/d0e1a045-a351-41f5-92d8-e8d874df4a1f.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/d0e1a045-a351-41f5-92d8-e8d874df4a1f.png"/><ul><li>Core CPI increased by 2.8% year-on-year, the slowest pace since the inflation outbreak in spring 2021; expected 2.8%, previous value 2.8%;</li><li>Core CPI increased by 0.2% month-on-month, expected 0.3%, previous value 0.1%.</li></ul><img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/feedbd59-ee64-48c8-8e94-e7d808e1b090.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/feedbd59-ee64-48c8-8e94-e7d808e1b090.png"/></blockquote>From a structural perspective, commodity prices have just returned to the inflation zone (year-on-year +0.1%), while service sector inflation continues to decline. However, core services have seen a month-on-month increase.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/50bd98db-b822-4a35-980f-62c33183be39.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/50bd98db-b822-4a35-980f-62c33183be39.png"/>Further breakdown shows that the so-called &#34;super core CPI&#34; (services excluding housing) fell to 3.01% year-on-year, the lowest level since December 2021.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/f6fc6ebf-5a69-4bc4-b81a-0c653117e1d6.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/f6fc6ebf-5a69-4bc4-b81a-0c653117e1d6.png"/><h2>Housing costs remain key to inflation, significant decline in food prices</h2>According to the CPI report, housing costs once again accounted for more than half of the increase, with the index rising by 0.3% in April. Despite a significant drop in oil prices, the energy index still rose by 0.7%, mainly due to increases in natural gas and electricity costs.In other common inflation expectations, motor vehicle insurance rose by 0.6% in April, up 6.4% year-on-year.Household goods and operating indices increased by 1%. However, prices for major imported goods such as furniture and appliances have risen.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/f5dd3c56-e9bb-42cb-9406-d23a20131ad7.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/f5dd3c56-e9bb-42cb-9406-d23a20131ad7.png"/>Airfare, used cars, and clothing prices have decreased. Airfare prices are among the largest declines, down 2.8% from March, possibly reflecting the demand slowdown that airline executives have been warning aboutOverall clothing prices fell by 0.2%, with men's shirts and sweaters dropping by 2.8%.Food prices decreased by 0.1%, with household food (groceries) down by 0.4%, marking the largest decline since September 2020. Contributing to the decline were items such as meat/poultry/fish and eggs, breakfast cereals, rice, and baked goods. The price drop for eggs recorded the largest decline since 1984. Recently, avian influenza in the U.S. has caused egg prices to soar. The decline in frozen fruits and vegetables was the largest on record, dropping 3% that month.New car prices remained unchanged, differing from previous expectations of price increases due to tariff impacts.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/31457e0a-09f6-4e88-8201-a9aa93cb8a04.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/31457e0a-09f6-4e88-8201-a9aa93cb8a04.png"/>Traders continue to bet that the Federal Reserve will cut rates twice before the end of 2025.<h2>Tariff Shadows: Potential Risks in Short-Term Calm</h2>While the Trump administration's tariff policy is generally expected to drive up inflation, businesses may still be digesting large inventories and have not yet begun to implement widespread price increases.According to the Ministry of Commerce, China and the U.S. have canceled a total of 91% of the additional tariffs and suspended the implementation of 24% of counter-tariffs. However, U.S. importers still face high trade costs and are concerned that tariffs may be raised again after the suspension period ends.Analysts believe that this 90-day easing period may mean that price increases will be relatively moderate. However, according to Bloomberg's research, if congestion occurs at ports during the restocking period, it could actually lead to a faster rise in CPI.Ali Jaffery from CIBC Capital Markets warns that even if tariff policies are suspended, they may still timely affect prices:<blockquote>“Tariffs are unlikely to have a significant impact this month, as this is the first month of the government's global tariff regime. Businesses also have ways to remain patient with healthy inventories and high profit margins.Current tariff levels are still significantly higher than before they began, and there may be some pass-through, although it may spread over a longer period.”</blockquote>Fitch Ratings Chief Economist Brian Coulton believes that core inflation is currently in an optimal state:<blockquote>“Core commodity prices have not yet reflected the impact of tariffs imposed since February, while service inflation continues to gradually ease. The retrospective three-month core inflation rate has fallen below 3%. However, service inflation still appears quite stubborn, and car prices have begun to rise again.As inventories of imported goods before the tariffs are depleted, core commodity inflation may rebound in the coming months.”</blockquote><h2>Market Reaction</h2>After the data was released, the dollar index fell about 10 points in the short term, currently reported at 101.45;<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/a1e91913-24cd-445e-8afd-f3517f09f9f2.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/a1e91913-24cd-445e-8afd-f3517f09f9f2.png"/>U.S. stock futures rose slightly, with the Nasdaq 100 index futures up 0.4%; the yield on the U.S. 10-year Treasury bond fell slightly, currently at 4.455%; spot gold fluctuated little, currently at $3,240 per ounce.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/7528ac37-e45c-4bf2-ba4e-0099f2f49a67.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/7528ac37-e45c-4bf2-ba4e-0099f2f49a67.png"/>

Core CPI increased by 2.8% year-on-year, the lowest rate since the inflation outbreak in the spring of 2021. Housing costs remain a key driver of inflation, while prices for airfares, used cars, and food have declined. Nevertheless, the impact of tariffs has not yet fully manifested, and businesses may be in the process of digesting inventory

- In April, the U.S. Consumer Price Index (CPI) rose by 2.3% year-on-year, marking the lowest increase since February 2021 and falling short of expectations.  
- Core CPI also showed a year-on-year increase of 2.8%, while housing costs continued to drive inflation, accounting for over half of the CPI rise.  
- Despite a temporary easing of tariffs, concerns remain about potential price increases as inventory levels normalize and trade costs persist.

Inflation cools down! The U.S. April CPI year-on-year is 2.3%, the lowest level since February 2021