A widely followed measure of inflation rose in April, although the pace of the annual increase raised hopes that the cost of living will fall later this year.
The consumer price index, which measures the cost of a wide range of goods and services, rose 0.4% for the month, in line with the Dow Jones estimate, according to a report by the Labor Department on Wednesday.
However, that represented an annual increase of 4.9%, slightly less than the 5% estimate and the lowest annual pace since April 2021. The annual rate was 5% in March.
Excluding the volatile food and energy categories, monthly core CPI rose 0.4% and 5.5% year-on-year, both in line with expectations.
The rise in housing, petrol and used vehicles pushed the index higher, offset somewhat by falls in the price of heating oil, new vehicles and food at home.
Markets reacted positively to the news and futures turned positive as government bond yields fell.
“Today’s reports suggest the Fed’s campaign to contain inflation is working, albeit more slowly than you’d like,” said Quincy Krosby, chief global strategist at LPL Financial. “But for financial markets … today’s inflationary pressures are positive on balance.”
Despite the Federal Reserve’s efforts to lower prices, inflation continued. From March 2022, the central bank decided to raise interest rates ten times in a row by a total of five percentage points, bringing benchmark interest rates to their highest level in almost 16 years.
The CPI has cooled significantly since its peak of around 9% in June 2022. However, inflation is still well above the Fed’s annual target of 2%.
The report provides both good and bad news on the inflation front as Fed officials weigh up their next rate move.
The cost of accommodation, which accounts for about a third of the CPI weight, rose another 0.4% month-on-month and is now 8.1% higher than a year ago. The monthly gain represented a decline from previous months’ gains, but was still an indication that a key inflation driver is picking up.
With housing costs expected to fall, the Fed is focusing on “super-core” inflation, which excludes food, energy and housing. This figure increased by 0.4% in April and thus by 3.7% compared to the previous year. The monthly gain was slightly above March’s 0.3%, while the annual pace was flat.
At the same time, the 4.4% rise in prices for used cars and trucks reverses recent falls. However, food prices were flat, while the energy index rose 0.6% on the back of a 3% rise in gasoline.
Of the six grocery indices that the Bureau of Labor Statistics uses to calculate food prices, four saw declines. Milk, for example, fell 2%, its sharpest monthly decline since February 2015. Egg prices, one of the biggest gainers in the food index over the past year, fell 1.5%, bringing the annual increase to 21.4%.
For workers, real average hourly earnings adjusted for inflation rose 0.1% over the month, but were still 0.5% down year-on-year, the BLS said in a separate report.
Following the reports, traders cut the likelihood that the Fed would hike rates at the June meeting to 20%, according to CME Group’s FedWatch tracker of Fed funds futures pricing.
The CPI read comes just days after the BLS reported that nonfarm payrolls rose by 253,000 in April, ahead of expectations and suggesting that the job market is struggling despite the Fed’s efforts to contain demand to cool down, is still hot.
When the Fed approved its latest rate hike last week, it removed a reference that future hikes were warranted and instead switched to language saying decisions will be based on incoming data.
The Labor Department is to release the April Producer Price Index, a measure of wholesale prices for retail goods and services, on Thursday. This report is expected to show an overall increase of 0.3% and a core increase of 0.2%.