Positive news, if not for the specter of tariffs
Louise Collis, Senior Economist
Peter Bernstein, Chief Economist pbernstein@rcfecon.com, 312-431-1540 x1515
May 15, 2025
The Current Situation
The CPI rose 0.2% in April, and the twelve-month inflation rate fell to 2.3% – the lowest rate since February 2021. Core CPI rose just 0.2%, resulting in a 2.8% annual inflation rate, the lowest core inflation rate since early 2021. The April Producer Price Index fell 0.5% for the month, driven mainly by services which are down 0.7% for the month. This is all good news for inflation targets and things are heading in the right direction, but we aren’t there yet. Tariffs still loom large, with Walmart announcing that they expect to see tariffs reflected in price rises toward the end of May or into June.
Economists often focus on core inflation to strip out the volatility of energy and food prices. Food prices have indeed been up and down, with food at home swinging up 0.5% in March and then down 0.4% in April, but the year-on-year increases have been fairly steady between 2% and 3% over the last two years. Energy is much more volatile, with year-on-year values between -17% and +4% over the last two years. Importantly, 18 of the last 24 months have seen year-on-year deflation. Energy is down 3.7% compared to this time last year, contributing to the gap between CPI All Items and Core CPI.
The Federal Reserve focuses on Core PCE, rather than Core CPI, but the story is much the same. Core PCE is up 2.6% through March (the April data will be released May 30), the same rate as June last year. Falling energy prices have driven much of the fall in the CPI All Items, but we can’t count on that to get us to the 2% Fed inflation target.
RCF’s Inflation Scorecard
RCF’s Inflation Scorecard is based on analysis of 20 different price series comprising 98% of the total consumer price index. Each of these price series represents a portion of the CPI based on household spending patterns. For example, food purchased for at-home consumption is about 8% of the typical consumer’s budget; it has a weight of 8.04 out of a total index of 100.
Our scorecard presents two metrics to track month-to-month price increases. The first metric is the share of the index for which inflation in the most recent month is rising (greater than the prior month’s inflation) vs. the share of the index for which inflation is falling (lower than the prior month) or prices fell (deflation).
RCF Inflation Scorecard: April 2025
Our April scoreboard is an improvement on the March CPI report. Less than 22% of the weighted CPI had rising inflation in April. The combined weight of CPI components with falling inflation or deflation totaled 33.6% in April.
Our second metric is the share of the index for which the most recent month’s inflation exceeded 0.2%. In April, 60% of the weighted CPI saw a greater than 0.2% price increase, the best monthly reading for six months.
April was a better report than we had been expecting, with price decreases in categories such as apparel and toys where import tariffs could have had a large impact. There is still much uncertainty, and there is not much more we can do than wait and see.
Analysis of Individual Components of the Consumer Price Index
Sources: Bureau of Labor Statistics and RCF Calculations 1. Inflation direction indicates whether monthly inflation in April was higher or lower than monthly inflation in March. Deflation means prices fell in April vs. March.
Highlights:
- Food at home prices showed their volatility: up 0.5% in March, down 0.4% in April. Eggs led the way with a 12.7% decline for the month, although still up nearly 50% for the year. Food away from home has been more stable, albeit at a higher level, rising 0.4% for the third straight month and up nearly 4% for the year.
- Motor fuel prices fell for the third straight month and are at their lowest price since September 2021. They are down 33% from their peak in 2022.
- Nearly a quarter of the weighted CPI showed deflation. Other categories with falling prices in April were lodging away from home, apparel, public transportation/airfares, and education and communication.
- Owner’s equivalent rent rose 0.4% in April – the same increase as in March. Rents rose 0.3%, unchanged for the last 5 months. Shelter prices continue to be key drivers of inflation. Excluding them, the CPI increased only 1.4% over the past 12 months.
- Household energy rose 1.4% for the month and is up 5.6% for the year. Water, sewer, and trash collection is also well above target inflation, increasing 4.9% for the year.
- New vehicle prices were steady and used car and truck prices fell 0.5%.
