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TARIFF FEVER, YET TO INFECT CPI, HAS SMALL BUSINESSES SWEATING

Inflation, the bugaboo that has haunted markets and the Fed since mask mandates were lifted - and heightened in recent months due to Trump's tariff tantrums - continues to meander back down to earth, for now.

The Labor Department's Consumer Price Index $(CPI.UK)$ USCPI=ECI, which tracks the prices U.S. consumers pay for a basket of goods and services, increased by 0.2% in April, a reversal from March's unexpected 0.1% decline and printing a tad cooler than the 0.3% consensus.

Year-over-year, prices rose 2.3%, or 0.1 percentage point slower than the prior month's pace. Analysts expected a repeat of the prior month's 2.4% reading.

Core CPI, which omits volatile food and energy prices - and is often referred to as "underlying inflation" - rose on a monthly and annual bases by 0.2% and 2.8%, respectively.

Estimates called for 0.3% month-over-month and 2.8% year-over-year.

"Inflation remains sticky, and the Fed needs to be vigilant," Peter Cardillo, chief market economist at Spartan Capital Securities told Reuters. "Unless there (are) any real movements in terms of trade war ending by June, it looks like a June rate cut remains in question."

Cardillo expects the implementation of Trump's tariffs to show up in this summer's data.

"We're looking for those numbers to be ugly," Cardillo adds.

With this report, underlying inflation remains within one percentage point of Powell & Co's 2% inflation target:

Line-by-line, a 0.7% increase in energy prices and the 1.1% jump in housing fuels/utilities was mitigated by a 2.8% easing in airfares and nominal, although welcome, 0.1% drops in food and gasoline.

On the other hand, closely watched shelter and services prices both gained heat, rising by 0.3% and 0.4%, respectively.

On an annual basis, services are up 3.7% while shelter prices have risen by 4.0% - both well north of the core reading and certainly too hot for the Fed's liking:

Switching gears, small business owners in the U.S. grew grouchier last month, according to the National Federation of Independent Business (NFIB).

NFIB's Optimism index USOPIN=ECI shed 1.6 points, landing at 95.8, its sourest reading since before the Presidential election.

"This report gives us the first real read on small business confidence after the initial April 2 tariff announcement," notes Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, who adds "the index has reversed nearly all its initial post-election leap, in stark contrast to the sustained surge in the index following President Trump’s first election win in late 2016."

The report also marked its fourth consecutive monthly drop and its second straight month below its long-term average.

Digging deeper, while the uncertainty index inched lower it "remained far above" historical levels and expectations for better business conditions plunged by 6 points.

Sales expectations and plans to increase inventories dropped. Capex intentions fell to pandemic-era levels.

"Uncertainty continues to be a major impediment for small business owners in operating their business in April, affecting everything from hiring plans to investment decisions,” writes Bill Dunkelberg, NFIB's chief economist.

Poor labor quality was deemed the "most important problem," followed by taxes and inflation.

It should be noted that NFIB is a politically active membership organization, whose PAC skews heavily Republican, according to the Center for Responsive Politics/opensecrets.org.

(Stephen Culp)

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