CPI report: Annual inflation cooled last month to lowest level since April 2021
Minneapolis (CNN) It’s been two years of enduring painfully high prices, but the light at the end of the tunnel just got a little brighter for consumers.
Annual inflation continued its slow but steady deceleration in April, according to the latest consumer price index released on Wednesday.
The CPI rose 4.9% for the 12 months ending in April, according to the Bureau of Labor Statistics, representing a slightly lower increase than the 5% increase in March. It was below economists̵[ads1]7; expectations that the figure would remain unchanged.
It’s the 10th month in a row that the headline CPI rate has declined, and it’s at its lowest since April 2021 – when this painfully high rate of inflation started to pick up.
Excluding food and energy costs, which tend to have more volatility, the core CPI was unchanged at 5.5% for the 12 months ended April.
On a monthly basis, both the headline and core indexes registered gains of 0.4%, in line with forecasts from economists, some of whom expected higher fuel and used car prices to provide some upward pressure.
“It’s sticky and bumpy, but make no mistake, inflation is cooling,” Gregory Daco, chief economist at EY, said in a statement.
Some (small) relief for consumers
Data from April showed that the biggest month-on-month gains seen in the major categories came from used cars and trucks (up 4.4% from March, but down 6.6% year-over-year); and petrol (up 3% from March, but down 12.2% annually). Gas prices, which usually rise in April due to higher travel activity, rose in April after OPEC+ announced a surprise production cut.
Shelter costs, which account for a good chunk of the CPI – about a third of the main index and 40% of the core – also picked up, rising 0.4% for the month, the smallest monthly increase since January 2022. large category is expected to “turn over” later this year and reflect more closely the declines seen in the rental market, say economists. There is a significant lag in how the CPI calculates rents versus how they act in the market due to the infrequent timing of when the BLS collects the data, as well as when rents change in leases.
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A welcome decline – albeit a small one – came in the category of grocery prices, which fell 0.2% over the month, helping bring the annual inflation rate there to 7.1%. It is the second month in a row that food at home prices has been reduced. Overall food inflation (which includes higher restaurant prices) was flat for the second month, making it the softest back-to-back reading since mid-2019, Daco noted.
Prices continued to fall on a monthly basis in key commodities such as meat, fruit and vegetables and dairy products.
An “eye of the container” report
For two years now, Americans’ budgets have been squeezed by high inflation, which peaked last summer at a 40-year high and has slowly declined amid a prolonged interest rate hike campaign by the Federal Reserve. Since March last year, the US central bank has raised its benchmark interest rate 10 times in an attempt to cool inflation by stifling demand.
These anti-inflationary efforts make it more costly and difficult to borrow money, buy a home, buy a car or grow a business.
Fed Chairman Jerome Powell has warned that the downward path for inflation will be slow and bumpy, and it will “take some time” to get annual price increases back to a more sustainable level.
Andrew Patterson, senior economist in Vanguard’s investment strategy group, said: “This seems like another ‘eye of the container’ report with some good news for both sides of the inflation debate — whether or not we see enough bearishness for the Fed to pause.”
The Fed’s next policy meeting is a month from now. Markets are pricing in an 87% chance that central bankers will pause on a rate hike at the June meeting, according to the CME FedWatch tool Wednesday morning.
“The Fed cannot declare victory yet on the inflation front,” said Ryan Sweet, chief U.S. economist for Oxford Economics. “They’re not going to be able to declare victory for a long time. It’s going to be several months before we start to see much relief on the inflation front.”
The Fed is closely watching how inflation behaves in the services sector, where price increases can become “sticky” and not slow down as quickly because they are more strongly linked to workers’ wage growth. The inflation gauge for “super core” services that strips out housing slowed in April to 5.2% year over year, said Megan Greene, global chief economist for the Kroll Institute.
“Something that was at least going in the right direction,” she said.
Between now and the June meeting, the Fed will get further readings on inflation, housing, manufacturing and the labor market. On Thursday, these data will include the latest printout of producer price inflation (which has cooled considerably in recent months) and jobless claims (which have been on an upward trend).
“I think the Fed is going to keep clapping for now, keep rates where they are until the end of the year,” Greene said.
“This report doesn’t do much to change that. Inflation was always going to be bumpy on the way down; this report was in the right direction, but that doesn’t mean next month won’t be in the wrong direction.”