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CPI inflation in April 2024: Consumer prices rose 0.3%
In the last 12 months, however, the IPC increased 3.4%, in line with expectations.
Excluding food and energy, the main underlying inflation reading was 0.3% monthly and 3.6% annually, both as forecast. The 12-month core inflation reading was the lowest since April 2021, while the monthly increase was the smallest since December.
Markets reacted positively following the CPI release, with futures tied to major stock indices rising and Treasury yields falling. Futures traders raised the implied probability that the Federal Reserve would begin cutting interest rates in September.
“This is the first impression in a month that was not warmer than expected, so there is a relief rebound,” said Dan North, senior economist at Allianz Trade North America. “The excitement is a little over the top. This isn’t Caitlin Clark. She’s exciting, this isn’t exciting.”
In other economic news on Wednesday, retail sales remained flat for the month, compared with the estimate for a 0.4% increase. This number is adjusted for seasonality, but not inflation, suggesting that consumers have not kept pace with price increases.
For the inflation report, price gains for the month were heavily driven by increases in both housing and energy.
Housing costs, which have been a particularly trouble spot for Federal Reserve officials who expect inflation to fall this year, rose 0.4% for the month and were up 5.5% from a year ago. Both are uncomfortably high levels for a Fed trying to reduce overall inflation to 2%.
The energy index rose 1.1% for a month and rose 2.6% on an annual basis. Food was stable and rose 2.2%, respectively. Used and new vehicle prices, which contributed to the initial rise in inflation during the worst of the Covid pandemic, have declined, falling 1.4% and 0.4% respectively.
Areas that showed notable gains for the month included apparel (1.2%), transportation services (0.9%), and healthcare services (0.4%). For transportation services, this brought the annual increase to 11.2. Services excluding energy, a key point for policymakers, rose 0.4% for the month and was up 5.3% for the year.
The rise in inflation was bad news for workers, who saw earnings fall 0.2% for the month when adjusted for inflation. In 12 months, real income rose just 0.5%.
In the shelter components, both primary residence rent and the equivalent rent from major landlords, or what landlords think they can get to rent out their properties, rose 0.4% for the month. They rose 5.4% and 5.8% respectively on a 12-month basis.
Apparently, consumers still felt the impact of higher prices in the month.
O advance estimate for retail sales in April showed no change for the month, after increasing a downwardly revised 0.6% in March. Sales, however, increased 3% compared to the previous year. Excluding automobiles, sales rose 0.2%, in line with the Dow Jones estimate.
A 1.2% drop in online revenue held back sales numbers, as did a 0.9% drop in sporting goods and related stores, while motor vehicle and parts dealers saw a 0.8% drop.
Gas stations, driven by rising prices at the pump, reported a 3.1% jump, while electronics saw an increase of 1.5%.
The reports come with the Fed on hold since July 2023 as inflation has proven more resilient than expected. Policymakers have said in recent weeks that they need more proof that inflation is on a sustainable path back to its 2% target before agreeing to lower rates.
The Fed’s benchmark interest rate is set in a range between 5.25% and 5.5%, the highest level in 23 years.
In comments Tuesday, Fed Chairman Jerome Powell acknowledged that the early 2024 readings were higher than expected and said it is likely the central bank will need to keep monetary policy “at the current rate for longer.” longer than previously thought.”
For financial markets, this means the Fed will likely wait for the summer to get better data on inflation, with an initial rate cut coming in September. This would be the first reduction since the early days of the Covid pandemic in 2020.
“We believe it will be early September before they cut,” said North, an economist at Allianz. “Their mindset seems to be, ‘We’re in no rush to cut rates. Inflation isn’t anywhere near 2%, the economy is fine, we won’t do anything for months.'”
Fed officials raised the overnight benchmark rate 11 times from March 2022 to July 2023, hoping that would help curb demand that has driven inflation to its highest level in more than 40 years. Policymakers thought inflation would pass once supply chain problems caused by the pandemic eased, but strong demand fueled by fiscal and monetary policy stimulus kept price pressures high.