April CPI Report Preview: Tariffs Begin to Bite as Inflation Trough Risks a False Sense of Relief

The April 2025 Consumer Price Index (CPI) report, set for release at 8:30 A.M. ET on May 13, is expected to show relatively stable year-over-year inflation, but the calm may be deceptive. Consensus estimates call for headline CPI to rise 2.3% YoY, down slightly from 2.4% in March, while core CPI—excluding food and energy—is forecast to remain unchanged at 2.8%. However, month-over-month prints are expected to pick up, with both headline and core CPI projected to rise 0.3%, hinting at early pressure from the tariff wave implemented in early April.

Ask Aime: "Prepare for the April 2025 CPI swing, which could impact your investments."

Market Focus: Tariffs Enter the Equation

While the March CPI report brought a disinflationary surprise, driven by weak energy prices and a soft print in shelter inflation, April may mark the bottom of that trend. April CPI will be the first to potentially reflect the early effects of sharp tariff increases—namely the levy on Chinese goods and fresh duties on steel, aluminum, and select medical and technology imports. Still, due to lagging inventory cycles and front-running by importers in Q1, much of the tariff impact is likely to hit in May and June.

That delay, however, should not lull markets into complacency. While businesses front-loaded imports before the April tariff wall, April CPI will give us an initial read on categories like apparel, electronics, and auto parts, where margins are tighter and cost pass-throughs quicker.

Sticky Components and Base Effects

Sticky inflation categories—especially shelter—remain in focus. Shelter rose just 0.2% MoM in March, a sharp drop from recent trends, and is expected to stay subdued again in April. But some forecasters caution that rising construction costs from steel and timber tariffs could eventually bleed into rents. Meanwhile, energy prices are expected to exert a mixed impact. Gasoline saw a modest increase in April, but overall energy inflation is still well below 2024 levels.

Base effects complicate the year-over-year comparisons. April 2024 saw relatively high core CPI of 0.3% MoM, which helps keep YoY figures steady. But May, June, and July of last year saw extremely low readings—just 0.1% in May and June, and 0.2% in July. If the monthly CPI averages 0.4% from here (a scenario Citi and others warn is plausible), annual core inflation could spike to 3.6% by August—and potentially 4% by year-end.

Markets React Optimistically—for Now

Markets are reacting to early CPI expectations and soft rhetoric from Fed officials with optimism. S&P 500 futures rose over 3% Monday morning, driven by risk-on sentiment after U.S.–China trade talks concluded with a surprise agreement to lower tariffs temporarily. Treasury yields are climbing—10-year yields are around 4.45%—while gold is plunging as investors rotate out of safe havens.

Tech stocks are leading the charge, with the Nasdaq 100 futures up 4%. tesla, apple, and nvidia are among the top gainers, as reduced tariff fears ease supply chain concerns. Meanwhile, pharma stocks are under pressure following Trump’s executive order on drug pricing—another inflation-linked policy twist with market implications.

April CPI: Inflection or Illusion?

Despite the market's relief rally, there are reasons to stay cautious. The April CPI could mark the trough in inflation data before a structurally higher summer print. Rising tariffs, lingering wage pressure in services, and a tight labor market point to upside risks in the months ahead.

Citi’s economists expect core CPI to rise 0.26% in April and climb further into the summer, with goods prices rebounding and services inflation remaining sticky. Their model shows that even with a slowing economy, the tariff shock could drive core CPI to 3.6% by late summer. That scenario, paired with weakening growth, edges the macro backdrop toward stagflation—a worst-case setup for equity valuations.

What to Watch at 8:30 A.M.

When the data drops Tuesday morning, market participants should focus on:

• Core Services ex-Shelter: Watch travel-related services, which saw unusual softness in March.
• Goods inflation: Any upward surprise here would hint at early tariff pass-through.
• Rent & OER (Owners’ Equivalent Rent): If these remain soft, they could provide a buffer.
• Used vehicles & apparel: Early categories to reflect import-cost sensitivity.
• Energy: A rebound in gas prices could mask underlying inflation trends.

The Road Ahead: June, July, and Beyond

If April CPI is soft, there’s a chance it gives the Fed cover to stay dovish—but it may be a short-lived reprieve. As May and June data reflect deeper tariff effects and last year’s easy comps roll off, inflation could rise sharply even without new shocks. A critical date looms: July 9, when reciprocal tariffs could snap back into place, potentially pushing inflation even higher.

For now, April may offer relief—but investors should view it less as a turning point and more as the eye of a gathering inflationary storm.