Inflation in the U.S. has dropped to its lowest level in four years, bringing some short-term relief to consumers. But experts warn this won’t last. Even though trade tensions have eased, high tariffs and other economic factors are expected to drive prices back up soon.
Contents
Inflation Dips to Lowest Since 2021
In April 2025, the U.S. inflation rate dropped to 2.3%, according to the Consumer Price Index (CPI). This is the lowest level since February 2021 and a sign that prices are rising more slowly than before.
Another important inflation measure—the Personal Consumption Expenditures (PCE) index, used by the Federal Reserve—also showed a slowdown, with a 2.3% increase in the year ending March.
This slowdown in inflation is welcome news, especially after a few years of rapid price increases. But it may not last long.
Tariffs May Push Inflation Higher
Despite some easing of trade tensions, the U.S. is still enforcing high tariffs—the highest since World War II. These tariffs, which are essentially taxes on imported goods, were mostly introduced in mid-April. That means their effects haven’t shown up in inflation reports yet.
Economists expect that by May or June, the impact of tariffs will start to appear. Companies are likely to pass these higher costs on to consumers, meaning everyday items could get more expensive.
In fact, during President Trump’s first term, research showed that American consumers paid about 90% of the extra cost from tariffs.
Fed’s Challenge: To Cut Rates or Not?
The Federal Reserve is aiming to bring inflation down to 2% a year. While the recent slowdown helps, the Fed is now in a tough spot.
If inflation rises again due to tariffs, the Fed may need to hold off on cutting interest rates—or even raise them. But if the economy slows down and unemployment increases, the Fed may need to cut rates to support growth.
Right now, markets expect the Fed to cut rates in September and again in December. But nothing is guaranteed. Much depends on how tariffs and other policies play out in the coming months.
See more related articles: Is fed independence under threat
Other Factors That Could Affect Inflation
Tariffs aren’t the only influence on inflation. The Trump administration is also pursuing policies like:
-
Tighter immigration enforcement
-
Looser regulations
-
Lower taxes
These could also have an impact on prices, though the effects are still unclear.
“It is uncertain whether inflationary pressures would be temporary or persistent,” said Philip Jefferson, Vice Chair of the Federal Reserve.
Could We See Stagflation? Probably Not
One major concern is stagflation—a rare situation where inflation rises while the economy slows down. That combination makes it hard for the Fed to make the right call on interest rates.
So far, most experts say stagflation is unlikely. The economy still appears stable, and trade tensions are easing somewhat.
“The economy still appears to be on solid ground,” said Chris Larkin, managing director at E-Trade.
What to Expect Next
-
Inflation may rise in the next few months as tariffs take effect.
-
The Fed will watch closely before deciding on interest rate changes.
-
Consumers could face higher prices, especially on imported goods.
-
Economic uncertainty remains, with many moving parts at play.
While the current dip in inflation is good news, it’s likely a temporary break. High tariffs and other policy changes could soon push prices up again, affecting everything from grocery bills to borrowing costs.
