Soft CPI Data Crushes Inflation Fears – And Sets Stocks Up for a Summer Surge

What a difference a month makes… Back in early April, stocks were crashing into a bear market on fears that President Trump’s “Liberation Day” tariffs would freeze global trade, reignite inflation, and send the economy spiraling into a recession. After April 2’s tariff blitz, stocks fell 10% in two days; something that’s happened only a handful of times in the past 100 years.

Since then – thanks to tariff rollbacks, resuming trade flows, and a restabilized global economy – the market has staged one of its sharpest short-term rallies ever as the S&P 500 climbed nearly 20% in just over 20 days.

This rally is showing no signs of fatigue just yet… and we don’t think it will anytime soon. 

Just look to yesterday’s Consumer Price Index (CPI) report. In our view, it wasn’t just a “good” inflation report – it was the sort of data that should help set the stage for a massive summer stock rally. 

Headline CPI came in at just 0.2% month-over-month, below the 0.3% consensus. It was the same story for core CPI – a measly 0.2% increase, also undercutting estimates. Nearly every major component of the index either cooled or dropped outright: 

• Food price inflation – down from 3.0% to 2.8% year-over-year 
• Energy inflation – still negative and getting even more so, falling from -3.3% to -3.7%
• Transportation services inflation – down from 3.1% to 2.5%.

Shelter stayed elevated; but even there, cracks are starting to show.

In short, inflation didn’t flare up as so many feared. It fizzled. And in this environment, that’s about as bullish a signal as it gets.

But here’s the real kicker: April’s soft inflation print wasn’t just a sign of easing price pressures. To us, it was a death knell for what had been the market’s biggest fear this spring: tariff-driven reinflation.

Overblown Inflation Fears Are in the Rearview

After Trump launched the biggest tariff barrage since the Smoot-Hawley days on April 4, pundits rang the alarm bells, warning of imminent price spikes. 

But it seems the data is giving those doomsayers the cold shoulder.

In March, before the tariffs began, CPI inflation was 2.4%. In April – post-“Liberation Day” – it ran at 2.3%. And right now, according to the Cleveland Fed’s Nowcasting, real-time data for May is tracking at 2.4%. It seems there’s no tariff reinflation to be seen.

How about core CPI inflation? 2.8% in March, 2.8% in April, tracking for 2.8% again in May – that’s a textbook definition of stable.

So, what gives? Didn’t Trump just slap a 125% tariff on Chinese imports, among other things?

Yes; but he also hit the brakes.

Since “Liberation Day,” we’ve had a 90-day tariff pause, exemptions for auto parts and electronics, a U.S.-UK trade deal, and a U.S.-China trade truce. Collectively, those actions slashed the average effective U.S. tariff rate from a sky-high 30% to a far-more-manageable 13%.

So, if 30% tariffs didn’t spark reinflation, 13% tariffs definitely shouldn’t.

That’s why we’re burying the reinflation narrative. The data is making it clear that tariffs are not causing reinflation. 

And so long as things keep trending in the direction they are going right now, tariffs won’t cause any reinflation anytime soon.