Insights 
VT 
In April 2025, the US Consumer Price Index (CPI) recorded a year-on-year increase of 2.3%, slightly below the forecasted 2.4%. This marks the lowest rise since February 2021, with a month-on-month increase of 0.2%, below the expected 0.3%.
Core CPI matched expectations with a year-on-year rise of 2.8%. The month-on-month increase was 0.2%, also below the predicted 0.3%. Real weekly earnings saw a decline of 0.1%, contrasting with a revised previous increase of 0.6%. Core goods prices edged up by 0.06%, while core services rose by 0.317%.
Shelter And Energy Costs
Shelter costs climbed 0.3%, contributing to over half of the monthly index increase. Energy costs went up by 0.7% owing to higher natural gas and electricity prices, despite a 0.1% decrease in gasoline. The food index noted a 0.1% decline. Core CPI annualised over three months stood at 2.1%, and over six months at 3.0%.
The latest figures from the US Consumer Price Index offer a slightly cooler reading across the board, with both headline and core inflation coming in below or meeting forecasts. Annual CPI of 2.3% reveals a mild easing compared with earlier months, while the monthly increase slowing to 0.2% shows a gentler upward pressure on prices in April. The dip in real weekly earnings, down 0.1%, indicates incomes are not quite keeping pace with cost of living—an element that’ll weigh into consumption patterns as we move through the quarter.
Broadly, while core goods prices rose marginally and core services a touch more, the general pricing pressure saw only a modest monthly rise. Most of the upward contribution came from shelter—still climbing, albeit at a steady pace of 0.3%. This one category added more than half to the overall monthly gain. Energy nudged higher again, due mostly to electricity and natural gas, even as petrol eased slightly. Food prices, in contrast, slipped lower. All of this contributes to a picture that’s neither accelerating sharply nor bringing outright relief.
Inflation And Policy Implications
Three-month annualised core CPI at 2.1% places it much closer to where policy targets typically aim, though the six-month view shows a firmer 3.0%, reminding us that the trend has not yet levelled out completely. There’s less reason now to expect an abrupt policy shift in response, but the softer reading may encourage a recalibration of implied volatility, particularly in interest rate-sensitive instruments.
Given that the three-month pace has eased more than longer-dated trends, a short-term positioning adjustment seems practical. It may prompt us to be more responsive to near-term inflation data rather than leaning on multi-quarter assumptions that the broader direction is already established. With shelter still the most persistent upwards driver, rate trajectories will likely stay subject to services-driven inflation readings.
We also note that wage data—while showing short-term decline—sits over a previous period of strong gain, implying uneven performance rather than a clear direction. It would appear that the market may digest these mixed signals gradually, which tends to add to rate path uncertainties. That, in turn, may influence curve steepeners or flatteners, depending on upcoming employment and PCE prints. Implied volatilities, which have trended down since March, may see brief lift, but the bulk positioning seems aligned for a slower descent in CPI.
From our view, relative value within the curve could lead the strategic shifts ahead of the next PPI and core PCE announcements. Short-end expectations, particularly in STIR products, ought to reflect the softness in real earnings and headline inflation declines more quickly. Meanwhile, longer maturities may not reprice as swiftly unless confirmed by repeated prints. Watching shelter and core services month-on-month figures during the next release remains one of the more effective barometers for timing directional bias. As it stands, rate hike bets should reduce further absent any upside surprise in May data.
