Forecasts for April PCE Report Show Another Good Month for Inflation

Key Takeaways

• The annual rate of PCE inflation is expected to drop to 2.2% from 2.3% in April.
• Economists generally agree that tariffs will put upward pressure on inflation in the short term; many expect higher inflation readings this summer.
• The Federal Reserve is expected to continue holding interest rates steady next month.
• US trade policy is still evolving, and the longer-term impact of tariffs is still difficult to forecast.

Forecasts for the April Personal Consumption Expenditures Price Index report show that inflation continued to moderate in April. Inflation has fallen dramatically since peaking in the summer of 2022, and the overall inflation rate is approaching the Federal Reserve’s 2% target.

Complicating the picture, however, are the new tariffs announced this spring by the Donald Trump administration. Analysts say that new import taxes will put upward pressure on prices and reverse some recent progress on inflation. With trade policy still fluid, however, it is difficult to forecast the full impact of tariffs on prices over the long term.

“There’s things that we’ll expect to see that just haven’t played out yet,” says Josh Hirt, senior US economist at Vanguard.

Inflation Likely Remained Soft in April

Overall, economists expect that consumer prices as measured by the PCE index rose 0.15% on a monthly basis in April, according to FactSet’s consensus estimates. That would bring the annual inflation rate down to 2.2% from 2.3% in March. Economists expect that core inflation, which excludes volatile food and energy prices, was 0.12% on a monthly basis in April and 2.5% on an annual basis.

“We’re expecting a pretty soft number,” Hirt says. His forecast is for core PCE inflation of roughly 0.15% for the month.

April PCE Report Highlights

• PCE report release date and time: Friday, May 30, at 8:30 a.m. EDT
• The PCE Price Index is forecast to rise 0.15% in April after falling 0.04% in March.
• Core PCE is forecast to rise 0.12% in April after rising 0.03% in March.
• Year over year, the PCE Price Index is forecast to rise 2.2% in April after increasing 2.3% in March.
• Core PCE year over year is forecast to rise 2.5% in April after increasing 2.6% in March.

Tariff Impact Still Muted for Now

Under the hood of the report, Hirt expects shelter prices to continue to moderate. That trend was also visible in the Consumer Price Index report released earlier this month, since much of the data used in the PCE Index is also part of the CPI Index. Elevated housing prices were one of the largest drivers of inflation in 2024.

The latest CPI report did not show as much evidence of tariff-related inflation as analysts expected, Hirt says, though he notes that prices in some goods sectors were elevated—evidence of the very early impact of the new levies. That trend could continue in the PCE data that is released on Friday, but it will likely be another month or two before the scope of tariff-related price increases becomes clear.

Economists from Bank of America say they anticipate the impact of tariffs on inflation to be more visible in May.

What Do Tariffs Mean for Inflation in the Long Run?

Economists say tariffs will boost prices in the short term, and analysts expect that boost to peak over the summer months. Economists from Goldman Sachs are forecasting core PCE inflation to spike to 3.6% later this year before falling again in 2026. “We expect tariffs to provide a one-time price level boost,” they wrote in a note to clients this week. Tariffs will disproportionately affect consumer electronics and apparel prices, they say.

Over the longer term, the outlook is murkier because negotiations are still underway between the United States and its trading partners.

Vanguard’s Hirt says a more moderate tariff regime compared with what the Trump administration announced in April will have a smaller impact on inflation in the months ahead. If the lower tariff rates stick, “we do think that this will be a much more manageable inflation picture,” Hirt says.

When Will the Fed Cut Rates?

With trade policy still fluid and inflation above its target, the Fed is widely expected to hold interest rates steady at its upcoming meetings in June and July.

Traders now see a roughly 50% chance that the central bank cuts rates for the first time in September, according to data from the CME FedWatch Tool. Meanwhile, the odds of the first cut coming in July have fallen to 24% from 40% over the past month.

“The market is pretty skeptical that the Fed is going to make any moves until the third quarter, but then it becomes more likely that they will,” Hirt says, so long as the labor market holds up. That gives the Fed “room to be patient and allow some of the tariff developments to play themselves out,” he says. Vanguard is expecting two rate cuts by the end of the year, in line with the market’s expectations.