U.S. consumer prices increased less than expected in April, with the consumer price index rising 0.3% after advancing 0.4% in March and February. Economists had forecast the CPI gaining 0.4% on the month and advancing 3.4% year-on-year. The annual increase in consumer prices has dropped from a peak of 9.1% in June 2022, but progress has stalled. Inflation accelerated in the first quarter amid strong domestic demand after moderating for much of last year.
Last month’s slowdown in the CPI was a relief after data on Tuesday showed a jump in producer prices in April. Inflation has been driven by providers of services like motor vehicle insurance, housing, and healthcare catching up to higher costs. Economists expect inflation pressures to ease this quarter and prices to gradually move toward the Federal Reserve’s 2% target as the labor market cools. Fed Chair Jerome Powell also expects inflation to move back down to lower readings seen last year.
Financial markets expect the U.S. central bank to start lowering borrowing costs in September. While a handful of economists anticipate the Fed will begin its easing cycle in July, others believe a rate cut could come in December, if at all. The Fed recently left its benchmark overnight interest rate unchanged in the current 5.25%-5.50% range, where it has been since July. The central bank has raised its policy rate by 525 basis points since March 2022.
Excluding the volatile food and energy components, the CPI rose 0.3% in April after advancing 0.4% in March. In the 12 months through April, the core CPI increased 3.6%. This marked the smallest year-on-year gain since April 2021, following a 3.8% increase in March. Economists expect inflation to continue slowing down in the coming months as overall price increases begin to align more closely with the Fed’s 2% target.
Inflationary pressures have been driven by rising costs in services like motor vehicle insurance, housing, and healthcare, which are now starting to stabilize. The labor market cooling is also expected to help ease inflation. Fed Chair Jerome Powell has indicated his belief that inflation will move back down to lower levels seen last year. Financial markets are anticipating a rate cut by the Fed in September, with some economists suggesting a potential start to the easing cycle in July.
Overall, the latest data on U.S. consumer prices show a lower-than-expected increase in April, providing some relief from recent inflationary pressures. The moderation in the CPI is in line with expectations for inflation to gradually ease in the coming months. Financial market expectations for a September rate cut by the Federal Reserve suggest confidence that inflation will continue to trend downward. As the U.S. economy navigates through these changes, policymakers will be closely monitoring inflation trends and adjusting monetary policy as needed.
