According to the latest Consumer Price Index (CPI) released on Wednesday, the annual inflation rate slowed down slightly in April, indicating that the two-year high inflation could be gradually decreasing.
In April, the Consumer Price Index (CPI) increased by 4.9% over the previous 12 months, which is a slightly lower rate of growth compared to March when it rose by 5%.
The core CPI, which excludes food and energy costs, remained unchanged at 5.5% for the 12 months ended in April.
Both the headline and core indexes recorded increases of 0.4% on a monthly basis, which was in line with the forecast by economists. Some experts had predicted that higher fuel and used car prices would push the figures upward.
However, the data for April indicated that the largest increase in prices from the previous month was observed in the category of pre-owned vehicles, which rose by 4.4% compared to March but experienced a decrease of 6.6% when compared to the same period last year.
Gasoline prices also rose in April, up 3% from March, but down 12.2% annually. Gas prices tend to rise in April due to higher travel activity. The prices increased after OPEC+ announced a surprise production cut.
Shelter costs, which account for a good chunk of CPI, picked up in April, rising 0.4% for the month. Shelter costs make up about one-third of the main index and 40% of the core index.
This is the smallest monthly increase since January 2022. Economists predict that this large category will “turn over” later this year and more closely reflect the declines seen in the rental market.
There is a significant lag in how CPI calculates rents compared to how they change in the market. This is due to the infrequent timing of when the Bureau of Labor Statistics (BLS) collects the data, as well as when rents change in leases.
US inflation shows signs of relief
The grocery prices category saw a welcome decline of 0.2% over the month, which is a slight relief for consumers who have been enduring high prices for some time.
This helped bring the annual rate of inflation in the category to 7.1%. Food at home prices pared back for the second month in a row, making it the softest back-to-back reading since mid-2019. Overall food inflation, which includes higher prices at restaurants, was flat for the second month.
Prices continued to decline on a monthly basis in key staples such as meats, fruits, vegetables, and dairy products. The CPI rate is still high, but it is gradually decreasing.
Gregory Daco, Chief Economist at EY, stated that “it’s sticky and bumpy, but make no mistake, inflation is cooling.” The Federal Reserve has stated that it believes the recent surge in inflation is transitory and expects it to normalize as supply chain disruptions are resolved.
The Fed plans to keep interest rates low until the labor market reaches full employment and inflation is sustainably above its 2% target. Fed Chair Jerome Powell has warned that bringing down inflation to a sustainable level will be a slow and bumpy process.
Vanguard’s senior economist, Andrew Patterson, commented that the recent Consumer Price Index (CPI) report provides both sides of the inflation debate with some good news, but the Fed cannot declare victory yet on the inflation front.
The Fed’s next policymaking meeting is scheduled for June, and markets are expecting an 87% chance that the central bank will pause on a rate hike at that meeting.
Chief US economist for Oxford Economics, Ryan Sweet, believes it will take several more months before there is significant relief on the inflation front. The Fed is particularly interested in how inflation behaves in the services sector, where price hikes can be stubborn and not ease quickly.
In April, the rate of inflation for services, excluding housing expenses, slowed down to 5.2% compared to the same period last year, according to the “supercore” metric.
The Fed will continue to keep a close watch on inflation, housing, production, and the labor market in the lead-up to the June meeting.
