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The US consumer price index (CPI) rose 2.3% year-on year in April, down from 2.4% in March and below the market estimate of 2.4%. This was the lowest annual inflation rate since February 2021. Gasoline prices dropped sharply and a steep decline in egg prices sent grocery prices lower. Monthly, CPI rose to 0.2% from -0.1%, below the market estimate of 0.3%.

Core CPI, which excludes food and energy and is considered a better gauge of inflation trends, remained unchanged at 2.8% year-on-year. Monthly, the core rate gained 0.2%, up from 0.1% and below the market estimate of 0.3%.

This inflation report was particularly significant as some of President Trump’s tariffs took effect in April. The tariffs are expected to dampen growth and raise inflation, and the lower-than-expected CPI was a relief to the financial markets, sending equities higher and the US dollar lower.

The tariffs could take several months to impact the US economy, which means we could see higher inflation data in June or July, fueled by the tariffs.
 

Fed Expected to Stay on Sidelines at Next Meeting

The Federal Reserve maintained rates at 4.25-4.5% at last week’s meeting, and Fed Chair Powell signaled that rate policy was in a good place and there was no rush to lower rates. Powell pushed back against President Trump’s loud calls for the Fed to lower interest rates. With the April report indicating that inflation was lower than expected, Powell can afford to continue his wait-and-see stance until Trump’s erratic tariff policy becomes clearer. The markets have priced in another rate hold at the June meeting at above 90%.
 

US Dollar Loses Ground, Stock Market Climbs after Inflation Report

The US dollar posted strong losses against the major currencies on Tuesday in the aftermath of today’s lower-than-expected inflation report as risk appetite has increased. AUD/USD, a risk currency, surged 1.55% on Tuesday and is up another 0.4% on Wednesday. The GBP/USD currency pair climbed 0.98% on Tuesday and has added gains of 0.36% on Wednesday.

The US stock market posted gains on Tuesday, as investors reacted positively to the inflation report.

The S&P 500 Index climbed 42.36 points (0.72%) and closed at 5,886.55. This marked the first time that the S&P 500 is back in positive territory for the year.

The Nasdaq 100 Index rose 301.74 points (1.61%) and closed at 19,01.08.

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