U.S. inflation cools to its lowest annual rate in more than four years in April, according to the latest Consumer Price Index (CPI) report released by the Bureau of Labor Statistics. The April inflation report showed that the CPI rose 2.3% year-over-year, falling just below the 2.4% predicted by economists and marking the smallest annual increase since February 2021.

The core CPI, which excludes the more volatile categories of food and energy, held steady at 2.8% compared to a year ago. That figure matched March’s reading and was the lowest annual gain for core prices since March 2021. The numbers suggest that inflation, while still present, is cooling more consistently than expected.

Vehicle and Housing Costs Show Signs of Easing

The April inflation report also showed a decline in used vehicle prices, which fell 0.5% for the second consecutive month. New vehicle prices remained flat, a positive sign for buyers after years of steep increases due to supply chain issues and elevated demand.

Shelter costs—one of the largest components of the CPI—rose by just 0.2% from March and were up 4.0% compared to April 2024. That year-over-year gain was the smallest since November 2021, reflecting a potential easing in the rental and housing market after extended periods of elevated growth.

“The moderation in shelter inflation is a welcome development,” said one economist familiar with the data. “While shelter costs are still rising, the pace has clearly slowed, which could help anchor inflation expectations going forward.”

Tariff Effects Still Loom as Inflation Cools

Despite the good news, economists caution that current readings may not reflect the full impact of recent trade policy changes. New tariffs enacted earlier this year have not yet pushed prices significantly higher, likely due to strong consumer spending in the first quarter and inventory stockpiling by retailers ahead of expected cost increases.

Those temporary offsets may be masking future pressures. As businesses begin to feel the effect of higher import costs, many analysts believe inflation could begin to rise again in the coming months. Companies facing slimmer profit margins may be forced to pass on those additional costs to consumers through higher prices.

Fed and Markets Watch for Further Clarity

As inflation cools and data shows signs of stability, attention turns to how the Federal Reserve will respond. The current figures may offer support for holding interest rates steady in the near term, especially if future reports continue to reflect contained price growth.

At the same time, any signs that inflation is rebounding due to delayed tariff effects or renewed supply pressures could quickly shift that outlook. For now, the April report offers a cautious signal that inflation may be retreating from its post-pandemic highs.

While inflation remains above the Fed’s 2% target, the slower pace in April—combined with softness in key areas like vehicles and housing—may provide some relief for consumers still adjusting to a high-cost environment. As summer approaches, analysts will be watching closely to see whether the slowdown holds or if new pressures emerge.