The latest data from the Bureau of Labor Statistics shows that inflation pressures remain elevated in the US economy, with the Consumer Price Index (CPI) revealing headline inflation rose 0.4% over the last month and 4.9% over the prior year in April. While the 4.9% annual increase is cooler than March's gain, it is still significantly above the Federal Reserve's 2% target.
Economists had expected prices in April to rise 0.4% month-over-month and 5% over last year, according to data from Bloomberg. On a "core" basis, which strips out the more volatile costs of food and gas, prices in March climbed 0.4% over the prior month and 5.5% over last year. Both measures were in line with economist expectations, according to Bloomberg data.
The energy index decreased 5.1% for the 12 months ending April, while the food index increased 7.7% over the last year. The energy index rose 0.6% from March to April on a seasonally adjusted basis, led by a 3% rise in gas prices.
Despite this, used car and truck prices rose 4.4% from March on a seasonally adjusted basis after several months of consecutive price declines. The jump was the biggest increase since mid-2021.
Core inflation remained especially sticky last month as rent prices continue to surge. The index for rent and the index for owners' equivalent rent rose 0.6% and 0.5%, respectively, in April. Owners' equivalent rent is the hypothetical rent a homeowner would pay. The shelter index increased 8.1% over the last year, accounting for over 60 percent of the total increase in core inflation.
The food index remained unchanged, and the food at home index fell 0.2%, with egg prices falling 1.5% in April after dropping 10.9% in March.
In light of the strong April jobs report, the Fed will be comforted by the CPI number, and it reinforces the Fed's policy slant towards a pause, according to Seema Shah, chief global strategist at Principal Asset Management. Bank of America Research lead economist Michael Gapen agreed, adding that while the topline numbers are discouraging, the details were encouraging. The markets are pricing in a roughly 85% chance that the Federal Reserve keeps rates unchanged in June, according to data from the CME Group.
The Fed has been raising interest rates in an effort to bring down inflation, but the central bank risks sending the economy into recession by raising rates too high too fast. Last week, the Fed signaled it could pause its hikes, saying it would assess incoming data ahead of its June meeting.
"We expect to receive more encouraging news on the inflation front as the economy cools, though we won't reach the Fed's 2% inflation target for quite some time," said Oren Klachkin, lead US economist at Oxford Economics, in reaction to Wednesday's report.
Although inflation remains stubbornly firm, there are some encouraging signs in this data that we haven't seen in a long time, according to Jefferies economist Thomas Simons. "The bottom line is that this is good news for the Fed, but they will want to see more," he added.
In conclusion, the latest CPI data shows that inflation pressures remain elevated in the US economy. Although the annual increase is cooler than March's gain, it is still significantly above the Federal Reserve's 2% target. Despite some encouraging signs in the data, the Fed will want to see more before making any significant policy changes.
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