U.S. consumer prices increased in April less than expected, suggesting that the downward trend in inflation continued at the start of the second quarter. This is seen as a positive development for financial market expectations, which now anticipate the Federal Reserve may start cutting interest rates as soon as September.
Other economic data further boosted hopes of the Fed easing its monetary policy this year. Retail sales were unexpectedly flat last month, indicating that domestic demand is cooling. This will likely be welcomed by Fed officials as they aim to engineer a “soft landing” for the economy.
The consumer price index (CPI) rose 0.3 percent in April, a slower pace than the 0.4 percent increase seen in March and February. The higher cost of living has weighed on the economy’s resilience and is a key campaign issue ahead of the November presidential election.
CPI for all items rises 0.3% in April; shelter and gasoline up https://t.co/dJyJeKlXDJ #CPI #BLSdata
— BLS-Labor Statistics (@BLS_gov) May 15, 2024
The main drivers of the CPI increase were the rising costs of shelter (up 0.4 percent) and gasoline (up 2.8 percent). However, food prices were unchanged overall, with declines in items like eggs, meat, and nonalcoholic beverages offsetting increases in cereals, bakery products, and some dairy.
On an annual basis, the CPI was up 3.4 percent in April, easing from 3.5 percent in March. Economists had forecast a 3.4 percent year-over-year rise. This marks a notable slowdown from the peak annual inflation rate of 9.1 percent reached in June 2022.
Rents remain sticky, but easing expected
Excluding the volatile food and energy components, the core CPI rose 0.3 percent in April, down from 0.4 percent in the prior three months. This lowered the three-month annualized increase in core inflation to a 4.1 percent rate, from 4.5 percent previously.
One area of stickiness remains rents, which increased 0.4 percent for the third straight month. Owners’ equivalent rent also rose 0.4 percent. However, market rents have been trending lower, and this is expected to filter through to the CPI data later this year.
Overall, the latest inflation data provides evidence that the downward trajectory in price pressures is continuing, bolstering expectations that the Fed may soon shift to an easing stance to support economic growth.
For more news on the economy, click here.
