By Lale Akoner
May 21, 2025
US April’s CPI report came in softer than expected, but we’re not ready to call it a turning point. Yes, the headline number cooled thanks largely to cheaper oil and the biggest grocery price drop since 2020 but the details are less comforting. Housing costs remained stubbornly high, and super-core services (excluding shelter) climbed. These are the sticky components that the Fed watches closely, and they’re not giving up ground easily. Retail investors are likely to view the recent data as a short-term positive which may support risk assets – especially equities and rate-sensitive sectors such as real estate and tech.
In our view though, it is still too early to judge the inflationary impact of new tariffs. The modest pass-through in April likely reflects pre-tariff inventory being cleared, not a lack of pricing power. That buffer may not last. Over the next few months, we’ll get a clearer picture of whether tariffs feed into consumer prices or trigger substitution effects and whether trade tensions end up hitting growth harder than inflation.
For now, this mixed bag validates the Fed’s cautious stance. There’s no urgency to cut, but no clear case for tightening either. Markets may cheer the softer print, but we still think that the inflation outlook remains uncertain.
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