When President Donald Trump announced in March a new wave of massive tariffs on imports - from China to Europe and Latin America - many economists set off alarm bells. Many predicted a new inflationary cycle, driven by higher import costs passed on to consumers. However, data released Tuesday by the Labor Department contradicted that narrative.

According to the official report, U.S. inflation fell to 2.3% in April, its lowest level since February 2021. The figure positively surprised markets, which had expected a slightly higher rate, and confirmed that, at least for now, fears of escalating tariff inflation have not materialized.

"And so all of a sudden, the two big fears in the market - a tariff-driven recession and persistent inflation - have dissipated considerably," said Chris Zaccarelli, chief investment officer at Northlight Asset Management.

Since the start of his second term, Trump has again deployed a confrontational trade strategy with tariffs of up to 145% on Chinese goods, and 10% on imports from dozens of other countries. Classic economic logic suggests that increasing import costs tends to make final products more expensive, which should be reflected in consumer prices.

The most sensitive sectors, such as household products, technology or processed foods, were under the spotlight. Deutsche Bank had even anticipated that the index of goods with high imported content would be a good thermometer to capture the effect of tariffs. In April, indeed, the index for household furnishings and operations was up 1% versus March, according to the Labor Department report cited by AFP.

But that sign was more the exception than the rule. As the German bank itself notes, it is still "too early for the tariffs to be reflected in the aggregate data."

Three reasons

Beyond the markets' initial relief, the key question is: why did inflation fall despite the environment of trade tensions? The April report offers at least three clear clues:

1. Moderation in gasoline prices

The gasoline index, a volatile but relevant component in the overall index, declined 0.1% in April compared to the previous month. On a year-on-year basis, the decline was 11.8%, which contributed significantly to easing the pressure on consumers' pockets.

2. Underlying inflation contained

Excluding energy and food prices - known for their volatility - so-called core inflation was only 0.2% monthly and 2.8% year-on-year, figures considered stable in macroeconomic terms. This indicates that price increases are not spreading throughout the economy.

3. Cooling in housing costs

Although housing costs rose 0.3% in the month - and accounted for more than half of the monthly increase - the pace has moderated with respect to previous peaks. The slowdown in the housing market, an indirect target of the Federal Reserve's monetary policy, is having an effect.

No tariffs, calm in the markets

Another factor that helped calm anxiety was a tactical shift by Trump himself. After an initial hammering, the president announced a partial pause to the imposition of new tariffs and the reversal of some key tariffs, in an apparent attempt to contain financial volatility.

"Fears of a recession triggered by punitive tariffs pushed markets lower in the first week of April," Zaccarelli explained. "But they rebounded thanks to the pause in tariffs, a breakthrough in negotiations with China and now a better-than-expected inflation report."

Wall Street celebrates (cautiously)

The good macroeconomic news was also reflected in the stock markets. U.S. stocks opened mostly higher on Tuesday, after posting strong gains on Monday following the announcement of a 90-day U.S.-China tariff truce.

Twenty minutes into the day, the Dow Jones was down 0.4%, but the S&P 500 was up 0.2% and the Nasdaq gained 0.6%, boosted by the recovery of technology companies.

Despite the relief, some analysts remain reserved. "A pickup in inflation is still expected later in 2025 as tariffs filter through the economy," said experts consulted by AFP.

Among the day's notable stocks, UnitedHealth Group fell 12.3% after announcing the departure of its CEO Andrew Witty for personal reasons and the suspension of its financial forecasts for the year due to higher operating costs.

Although the April data is encouraging, economists warn that the real impact of the tariffs could be felt with a lag, especially in durable goods and in more exposed supply chains. The household transactions index itself - which rose significantly - could be a preview of what is to come if the tariffs take hold.

In addition, uncertainty lingers about the government's next moves - will Trump escalate the trade war again? Will he be able to sustain this inflationary restraint without compromising economic growth?

For now, the only thing that is clear is that, contrary to the most pessimistic predictions, inflation has not only not shot up, but continues to fall.

With information from AFP