Inflation is slightly lower than April expectations as President Donald Trump's tariffs have just begun to reach a slowing U.S. economy, according to a report from the Labor Department on Tuesday.

The measured consumer price index measures the cost of a wide range of goods and services, with the month’s seasonal adjustment to 0.2%, setting inflation at 2.3% for 12 months, the lowest since February 2021. Monthly readings are consistent with the Dow Jones consensus estimate, while the 12-month forecast is slightly lower than the forecast at 2.4%.

In addition to volatile food and energy prices, the core CPI also increased by 0.2% this month, compared with a year-on-year level of 2.8%. The forecasts are 0.3% and 2.8% respectively.

Although the price rises far exceed the highest level three years ago, monthly reading volumes are a little higher than in March.

Housing prices are again the main culprit in pushing up the inflation scale. According to BLS, the category accounts for about one-third of the exponential weighting, an increase of 0.3%, accounting for more than half of the overall movement.

Energy prices rebounded, up 0.7% after releasing a 2.4% slide in March. Food fell by 0.1%.

Used car prices fell for the second time in a row, down 0.5%, while new vehicles were flat. Despite a 0.5% increase in health care, clothing costs also fell by 0.2%.

Egg prices fell, down 12.7%, although they remained up 49.3% from the same period last year.

Despite the relatively tame of April’s CPI numbers, Trump’s tariffs remain a wildcard in the inflation picture, depending on where the negotiations go from now to summer.

In his long-awaited "Liberation Day" announcement, Trump put 10% of all U.S. imports and said he intends to raise additional reciprocal tariffs on trading partners. Recently, however, Trump has backed down his stance, with the most dramatic developments lasting 90 days of active tariffs on China, while the two sides have conducted further negotiations.

The market expects that the president's softening stance will lead to less chances of lowering interest rates this year. Traders have been expecting the Fed to start relaxing in June, with at least three likely to cut this year.

The market has pushed its first cut to September since China's development, with only two this year likely to relieve pressure from central banks to support the economy and now it's over four years as inflation has surpassed the Fed's 2% target.

The Fed relies more on the Department of Commerce’s inflation scale for decisions, although the CPI involves the index. Thursday's BLS will release its producer prices for April, which is considered a major indicator of inflation.

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