Inflation eases in April with consumer prices rising 3.4% from a year ago

Inflation eased slightly in April, providing at least a bit of relief for consumers while still holding above levels that would suggest a cut in interest rates is imminent.

The consumer price index, a broad measure of how much goods and services cost at the cash register, increased 0.3% from March, the Labor Department’s Bureau of Labor Services reported Wednesday. That was slightly below the Dow Jones estimate for 0.4%.

On a 12-month basis, however, the CPI increased 3.4%, in line with expectations.

Excluding food and energy, the key core inflation reading came in at 0.3% monthly and 3.6% on an annual basis, both as forecast. The core 12-month inflation reading was the lowest since April 2021.

Markets reacted positively after the CPI release, with futures tied to major stock indexes rallying and Treasury yields tumbling. Futures traders raised the implied probability that the Federal Reserve would start cutting interest rates in September.

“This is the first print in a month that wasn’t hotter than expected, so there’s a relief rally,” said Dan North, senior economist at Allianz Trade North America. “The excitement is a little overdone. This is not Caitlin Clark. She’s exciting, this is not exciting.”

In other economic news Wednesday, retail sales were flat on the month, compared to the estimate for a 0.4% increase. That figure is adjusted for seasonality but not inflation, suggesting consumers did not keep up with the pace of price increases.

For the inflation report, price gains on the month were driven heavily by increases in both shelter and energy.

Shelter costs, which have been a particular trouble spot for Federal Reserve officials expecting inflation to come down this year, increased 0.4% for the month and were up 5.5% from a year ago. Both are levels uncomfortably high for a Fed trying to drive overall inflation back down to 2%.

The energy index rose 1.1% for a month and was up 2.6% on an annual basis. Food was flat and up 2.2% respectively. Used and new vehicle prices, which had contributed to the early rise in inflation during the worst of the Covid pandemic, both declined, falling 1.4% and 0.4% respectively.

Areas showing notable gains on the month included apparel (1.2%), transportation services (0.9%) and medical care services (0.4%). For transportation services, that took the annual increase up to 11.2. Services excluding energy, a key point for policymakers, increased 0.4% on the month and was up 5.3% on the year.

The inflation increase was bad news for workers, who saw earnings fall 0.2% on the month when adjusted for inflation. On a 12-month basis, real earnings rose just 0.5%.

In the shelter components, both rent of primary residence and the important owners equivalent rent, or what homeowners think they can get to rent their properties, rose 0.4% on the month. They respectively increased 5.4% and 5.8% on a 12-month basis.

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