The U.S. annual inflation rate slowed to 4.9 percent in April, down from 5 percent in March, according to the Bureau of Labor Statistics (BLS). This is slightly lower than the consensus estimate of 5 percent. This represented the 10th consecutive monthly drop in the annual inflation rate.
However, the consumer price index (CPI) rose 0.4 percent month-over-month, up from 0.1 percent in March. The huge jump in the monthly CPI was largely driven by increases in shelter costs, gasoline, and used vehicles.
The core inflation rate, which strips the volatile food and energy components, also dipped to 5.5 percent annually in April, down from 5.6 percent in March. This matched market expectations. However, the core CPI jumped 0.4 percent from March to April, remaining steady from March.
On a year-over-year basis, the food index slowed to 7.7 percent, with supermarket prices coming in at 7.1 percent. The food away from home subindex rose 8.6 percent compared to a year ago.
Within the food index, egg prices maintained their downward trend, sliding 1.5 percent in April. But they are still up more than 21 percent year-over-year. Lettuce, which has also experienced meteoric gains in recent months, increased 3.9 percent year-over-year and 3.5 percent month-over-month.
The energy index fell 5.1 percent at an annualized rate but rose 0.6 percent month-over-month.
Gasoline surged 3 percent month-over-month, but it is down 12.2 percent from last year. Electricity costs fell 0.7 percent last month but remain up 8.4 percent year-over-year.
On a monthly basis, new vehicles tumbled 0.2 percent, while used cars and trucks surged 4.4 percent. Apparel rose 0.3 percent. Medical care commodities jumped 0.5 percent, while medical care services slid 0.1 percent. Transportation services dropped 0.2 percent.
Shelter, which economists argue is a lagging indicator, continues to be elevated, rising 0.4 percent month-over-month. Rent of shelter is up 8.2 percent year-over-year and swelled 0.4 percent month-over-month. The owners’ equivalent rent of residences also advanced 8.1 percent from a year ago and rose 0.5 percent month-over-month.
“Given the 6 to 8 month lag between when housing costs decline and when the Fed’s inflation metrics reflect those changes, it’s very likely that housing costs will continue to come down,” noted Bryce Doty, the senior vice president and senior portfolio manager at Sit Investment Associates.
The annual services inflation eased to 6.8 percent, the first time it has fallen below 7 percent since August 2022. Services inflation, which accounts for everything from medical services, child care, and education, has been a sticky metric for policymakers.
The financial markets turned positive in pre-market trading following the better-than-feared CPI data.
The U.S. Dollar Index (DXY), a gauge of the greenback against a basket of currencies, tanked 0.15 percent to 101.45 following the news.
U.S. Treasury yields were red across the board, with the benchmark 10-year yield down about 7 basis points to 3.45 percent.
“This inflation report confirms CPI is trending as expected,” said Giuseppe Sette, the president at market analytics firm Toggle.
Despite investors cheering the news, Ryan Young, the senior economist at the Competitive Enterprise Institute (CEI), believes the conditions do not look so great when digging deeper into the data.
“Today’s core CPI numbers are especially troubling,” he said. “Volatile food and energy prices distort CPI readings by moving around for reasons having nothing to do with monetary inflation. Core CPI removes those numbers to get a clearer picture. April’s core CPI number is 5.5 percent over the last year, compared to 4.9 percent for the headline CPI number.”
Looking ahead to the May forecasts, the Federal Reserve Bank of Cleveland’s Inflation Nowcasting anticipates the annual inflation rate to ease to 4.4 percent and the core CPI to slow to 5.4 percent. On a month-over-month basis, the CPI and core CPI are projected to rise 0.2 percent and 0.5 percent, respectively.
Inflation Is Too High for the Fed
The chief talking point among officials at the U.S. central bank is that inflation is still too high.
Speaking at the Economic Club of New York on May 9, New York Fed Bank President John Williams suggested that interest rates could be increased if price pressures do not diminish.
“Because of the lag between policy actions and their [Federal Open Market Committee] effects, it will take time for the FOMC’s actions to restore balance to the economy and return inflation to our 2 percent target,” he said in prepared remarks, adding that he anticipates the annual inflation rate will fall to 3.25 percent this year.
Fed Governor Philip Jefferson noted on May 9 that the U.S. economy is slowing in an “orderly fashion,” allowing inflation to fall.
In the first quarter, the GDP growth rate was 1.1 percent, the lowest print since the second quarter of last year.
The futures market shares the Fed’s signal that it would pause its rate hikes. According to the CME FedWatch Tool, most investors think the central bank will leave the benchmark fed funds rate at 5.00 to 5.25 percent at next month’s FOMC policy meeting.
“This inflation report seems to suggest that for the time being, the Fed will not have a problem with inflationary pressures, which are trending as expected,” Sette added. “With core CPI firm at 5.5%, traders would do well to remember that rates historically are always higher than inflation except during a recession. In other words, rates don’t need to rise for monetary policy to be restrictive.”
Overall, according to Young, the U.S. economy is witnessing “the aftereffects of Washington’s pandemic spending overreaction.”
“Instead of sticking to pandemic-related aid, they grew the money supply by $5 trillion and passed every wish-list spending item they could. This caused today’s inflation as well as today’s debt-ceiling drama. An adult approach to COVID relief would have avoided all of these problems,” he said.
Meanwhile, more inflation data will be released this week.
The April producer price index (PPI) will be published on May 11, which is expected to climb 0.3 percent month-over-month but slow to 2.4 percent year-over-year. The core PPI is projected to rise 0.2 percent month-over-month and dip to 3.3 percent on an annualized basis.
Import and export prices for April are anticipated to be little changed, according to consensus estimates.
From The Epoch Times
