Annual inflation rate hit 2.3% in April, less than expected and lowest since 2021

Inflation was slightly lower than expected in April as President Donald Trump‘s tariffs just began hitting the slowing U.S. economy, according to a Labor Department report Tuesday.

The consumer price index, which measures the costs for a broad range of goods and services, rose a seasonally adjusted 0.2% for the month, putting the 12-month inflation rate at 2.3%, its lowest since February 2021, the Bureau of Labor Statistics said. The monthly reading was in line with the Dow Jones consensus estimate while the 12-month was a bit below the forecast for 2.4%.

Excluding volatile food and energy prices, the core CPI also increased 0.2% for the month, while the year-over-year level was 2.8%. The forecast was for 0.3% and 2.8%, respectively.

The monthly readings were a bit higher than in March though price increases remain well off their highs of three years ago.

Markets reacted little to the news, with stock futures pointing flat to slightly lower and Treasury yields mixed.

Shelter prices again were the main culprit in pushing up the inflation gauge. The category, which makes about one-third of the index weighting, increased 0.3% in April, accounting for more than half the overall move, according to the BLS.

After posting a 2.4% slide in March, energy prices rebounded, with a 0.7% gain. Food saw a 0.1% decline.

Used vehicle prices saw their second straight drop, down 0.5%, while new vehicles were flat. Apparel costs also were off 0.2% though medical care services increased 0.5%. Health insurance increased 0.4% while motor vehicle insurance was up 0.6%.

Egg prices tumbled, falling 12.7%, though they were still up 49.3% from a year ago.

While the April CPI figures were relatively tame, the Trump tariffs remain a wild card in the inflation picture, depending on where negotiations go between now and the summer.

In his much-awaited “liberation day” announcement, Trump slapped 10% duties on all U.S. imports and said he intended to put additional “reciprocal” tariffs on trading partners. Recently, though, Trump has backed off his position, with the most dramatic development a 90-day stay on aggressive tariffs against China while the two sides enter further negotiations.

Markets expect the president’s softening position to lead to less of a chance of interest rate cuts this year. Traders had been expecting the Federal Reserve to start easing in June, with at least three total reductions likely this year.

Since the China developments, the market has pushed out the first cut to September, with just two likely this year as the central bank feels less pressure to support the economy and as inflation has held above the Fed’s 2% target now for more than four years.

The Fed relies more on the Commerce Department’s inflation gauge for policymaking, though the CPI figures into that index. The BLS on Thursday will release its April reading on producer prices, which is seen as more of a leading indicator on inflation.