Brief: Soft Inflation Undermines Tariff-Related Recession Forecasts

April CPI data comes in at four-year lows, undermining forecasts that tariff-related costs will pass through to consumers and drive price growth

Mobius Intel Brief:

The Bureau of Labor Statistics’ April consumer price index (CPI) release undermined market narratives that tariffs would a) drive another wave of inflation as import costs pass through to consumers and b) force the U.S. into a recession by the end of this year.

Key Intel

  • The All Items CPI gained at an annualized rate of 2.3% in April—the lowest yearly change since February 2021 and below the 1990-2020 average of 2.4%. All Items CPI added 0.2% from March.

  • The Fed’s preferred ‘core’ metric that strips CPI of food and energy items grew at an annualized rate of 2.8%—a four-year low—and 0.2% from March.

The April CPI print followed March personal consumer expenditure (PCE) data that was similarly promising for the near-term inflation outlook, as All Items PCE and Core PCE grew at annualized rates of 2.6% and 2.3%, respectively. The March Core PCE reading was another four-year low.

Looking Ahead

As highlighted in last week’s Supply Chain Snapshot, the Fed’s decision to pause rate cuts over expectations that tariffs would spark another wave of inflation deviated from the data-centric commentary of previous meetings.

Recent inflation data shows the Fed’s 2% target could arrive more quickly than the prevailing Fed/institutional narrative expects.

With labor data remaining historically robust, an earlier-than-expected rate cut would likely force material upside revisions to 2025 crude demand growth and industrial activity forecasts.

This commentary contains our views and opinions and is based on information from sources we believe are reliable. This commentary is for informational purposes, should not be considered investment advice, and is not intended as an offer or solicitation with respect to the purchase and sale of commodity interests or to serve as the basis for one to decide to execute derivatives or other transactions. This commentary is exclusively intended for Mobius clients and is not considered promotional material.