Businesses both within the United States and abroad spent April trying to navigate the country’s rapidly shifting tariff policy, worried that the president’s crusade against the trade deficit could disrupt longstanding supply chains to devastating effect.
Last month, US Customs and Border Protection collected a record $16.3bn worth of customs duties, roughly equal to the total collected in both March and February. Retailers across the country front-loaded the import of massive amounts of merchandise in advance of sweeping tariffs taking effect early last month, though many of those were quickly rolled back after being announced on April 2.
While it will take months for retailers to feel the full impact, and longer for the prices on their shelves to be adjusted accordingly, the unprecedented stockpiling that occurred last month was a major factor in keeping prices stable. The 12-month percent change in the consumer price index (CPI) fell by 1 point from March to just 2.3% in April. With most tariffs suspended for 90 days and the trade war with China on hiatus due to ongoing negotiations, it appears that tariffs will not be hiking consumer costs for at least another few months.
The chart below shows this spike in gross customs duties compared to previous months going back to January 2017.
Despite the headline CPI’s decline, multiple items relevant to casualty and commercial auto loss costs remain stubbornly elevated.
The producer price index also declined for the month, though inflation for producer goods (excluding food and energy) rose. Crucially, inflation for construction materials specifically has been on a notable rise since February.
We go into more detail below.
Price inflation for medicine, car parts, and wages remains above the CPI
Medical care inflation is at 3.1% for April, with the healthcare industry seeming to have avoided the adverse impacts that tariffs could have had on the price of medical equipment and pharmaceuticals – for now. The price of medical drugs will be particularly important to watch in the coming months, as President Trump has simultaneously issued an executive order to lower prescription drug prices and promised tariffs to come on pharmaceutical imports.
Most of these goods (or their inputs) come from China, India and Mexico, which all have had tariffs reduced or postponed since April began.
In our previous notes on loss-cost inflation, we used three separate CPI items to give a more detailed view of healthcare inflation, but we’ve simplified it to just medical care inflation, as all three have remained relatively stagnant last month.
Motor vehicle equipment and repair prices increased by 0.8 points to 5.6% in April, likely owing to the 25% tariff levied by the Trump administration on all auto part imports irrespective of country, save for USMCA-compliant parts from Canada and Mexico.
In conjunction with similar tariffs on steel and aluminum, we expect the cost of repairing and replacing vehicles to only increase in the coming months. While commercial auto losses are more concentrated in casualty than in property, this will still have an impact on the bottom line of insurers underwriting that type of business.
Wage inflation remained constant at 4.3%, exactly where it was in March and February. While the initial shock of the April 2 tariffs raised fears of a recession early last month, the postponement of most tariffs has helped to keep the job market relatively healthy even amid reports of GDP falling in Q1. The April employment situation report by the Bureau of Labor Statistics noted that the unemployment rate also remained unchanged at 4.2%, which means there was no upward or downward pressure on wage inflation due to trends within the job market.
The chart below shows the 12-month percent change for wage, medical care and vehicle repair inflation items alongside the consumer price index for all items.
Tariffs on construction inputs could have raise property loss costs
The producer price index (PPI), which tracks the price changes faced by domestic producers, decreased by 1 point in April to 2.4%. This decline was driven mostly by falling producer prices on items like food, energy and services, while inflation for goods excluding food and energy moved slightly upwards.
While most of the tariffs announced on April 2 have since been postponed by the Trump administration, a number of blanket tariffs remain in effect.
Steel, aluminum and anything from Canada or Mexico that isn’t compliant with USMCA regulations are still tariffed at a 25% rate, and tariffs on Chinese imports have returned to their pre-April level of 30% (down from 145%). Every other import still faces the 10% baseline tariff that was imposed on April 2.
Important building inputs such as lumber, concrete and household appliances are among the goods most highly exposed to the tariffs that remain in place.
This is likely the primary factor that has caused the PPI’s construction materials special index to swing from –2.6% at the beginning of the new administration to 2.1% in April. Rising construction costs are likely to raise property losses, as the cost to repair and replace buildings rises. This will be particularly important to watch as reconstruction from the 2024 hurricane season and the California wildfires continues.
Construction materials PPI is compared to total final demand PPI below, using 12-month unadjusted percentage change.