US annual inflation decreased slightly to 2.3% in April, down from 2.4% in March, aligning with expectations. Monthly inflation increased to 0.2% but fell short of predictions. Core inflation remained stable at 2.8%. Investment Manager Nicholas Hyett noted that new tariffs initially stirred market concerns, but inflation impacts turned out to be less severe than feared. Businesses stocked up ahead of tariffs, causing GDP data distortions, resulting in lower prices temporarily. Overall, this suggests a resilient economy, and the Federal Reserve is likely to maintain interest rates for now.
The introduction of sweeping new tariffs on imports into the US roiled markets in April. However, the short-term impact on inflation has proven less than the market had feared - with MoM inflation lower than consensus at both the headline and core level.
The problem is that all the chopping and changing on tariffs means the picture is not at all clear. Importers sought to get ahead of the tariffs by stocking up in advance - leading to a serious distortion in GDP data.
Today's numbers suggest the US economy is a bit more resilient than some feared - but the tariff rollercoaster still has the potential to throw up future surprises. We suspect the Federal Reserve will continue to sit on the sideline and leave rates on pause for now.
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