The rate of inflation in the U.S. decreased in April as prices largely avoided tariff-related inflationary pressures, but one expert says the latest inflation figures suggest American consumers are increasingly fragile.
“You saw transportation prices and air fares decline, and that could be showing signs that the consumer, which we’ve felt for a while, is starting to lose steam,” Andrew Szczurowski, portfolio manager at Morgan Stanley Investment Management, told BNN Bloomberg in a Tuesday interview.
“You can kind of see that showing up in some of the demand for flights, so that was certainly something that stuck out.”
The U.S. consumer price index (CPI) rose 2.3 per cent last month from a year ago, the U.S. Labor Department said on Tuesday, the smallest increase in more than four years.
Some experts had predicted an uptick in inflation in April due to U.S. President Donald Trump’s tariffs and trade policy, which is expected to lead to higher consumer prices eventually.
“This was a report that some were expecting to start seeing those early signs from tariffs pull through to inflation. We certainly didn’t get that,” Szczurowski said.
“We could see that the report was trending in a direction that would have allowed the Fed (U.S. Federal Reserve) to cut rates over the short term.”
Despite the encouraging inflation print, the Fed will likely need to see significant weakening in the U.S. labour market before it decides to lower rates further, Szczurowski argued, especially considering the looming inflationary impacts of tariffs.
“They’re not at a point now where they want to cut rates in front of these tariffs, which are going to start filtering through, they want to see how bad it is and how much of that gets passed through to the consumer,” he said.
“I do think the consumer is in a much different state than they were in 2021 and 2022 (when) there were large wage gains going through… there was all this stimulus that had been pumped through, not to mention they had pent up savings from sitting at home for a year-plus during the pandemic.”
Szczurowski said that U.S. consumers are more vulnerable than they were a few years ago when inflation rose sharply following the pandemic, and U.S. companies are likely to see a significant drop in demand if there are widespread price increases in the coming months.
“I don’t think they can handle the price hikes this cycle, which means that price hikes are going to be met with less demand... companies are going to have to choose between eating some of those price hikes from tariffs or passing them on to the consumer,” he said.
“As far as the Fed, I think they want to give this a few months, see where it plays out… the only thing that can really get them off the sidelines in the short term is a dramatic decline in the labour market and I think that’s going to take a few months to play out as well.”
Szczurowski said he doesn’t expect a Fed rate cut until late in the third quarter of this year.
