U.S. consumer spending rose just 0.2% in April from March. This increase is a deceleration from last month’s increase of 0.7%. This modest uptick comes as inflation continues to decline from its post-pandemic peak, which reached the highest level in four decades in July 2022. Although inflation rates have eased, economists and business leaders are cautioning that prices may rise again due to the impending effects of tariffs imposed during the Trump administration.
A recent court ruling has already declared many of these tariffs unlawful. This is especially true for tariffs on imports from Canada, Mexico, and China. This ruling served to strike down tariffs on imports from more than 50 other countries as well. The fate of these tariffs is up in the air, leaving unknowns for what consumers should expect to pay in the future.
In April, the key U.S. inflation measure showed a surprisingly tame 2.1% rise on all consumer prices. That increase is measured against September 2022. This state represents a welcome slowing trend in inflation after several months of heightened price growth. The index for services increased 0.1% from March to April. Yet during this period, both overall prices and core prices rose by just 0.1%.
So, even as inflation poses real challenges in the economy, incomes saw a substantial increase of 0.8% in April. Core prices, excluding the volatile food and energy categories, rose 2.5% year-over-year, speaking to sustained pressures in more stable sectors of consumer spending.
Retailers are meeting these new economic realities with different levels of enthusiasm and creativity. When faced with inflation Costco included plans for raising prices on some products while holding the line on pricing elsewhere. Gary Millerchip, an executive at Costco, emphasized the importance of keeping prices steady on key staple items:
“We felt it was important to really eliminate the impact there because they are key staple items.” – Gary Millerchip
The conflicting signals from consumer spending and inflation are adding to a already complicated economic picture. Kathy Bostjancic, an economist at economic consulting firm DB Global Markets, noted that manufacturers have been looking ahead to possible tariff increases. Consequently, consumer spending is picking up. She warned that this could dampen household spending in the months ahead as families face higher prices and a potentially softening labor market.
“The pulling forward of consumer spending ahead of the tariff increases will continue to dampen household spending in the coming months, especially as they face higher prices and a softening labor market.” – Kathy Bostjancic
These advancements paint an optimistic picture, the reality remains that households and businesses alike are dealing with an uncertain, swirling economic landscape. Though consumer spending rose by a modest 0.3 percent in April, the specter of higher prices is already a possibility as tariff effects start to materialize.
