US Inflation Resumes Downward Trend, Eases to 0.3% in April; Core CPI Cools for First Time in Six Months: Powell

Inflation Slows, Offering Hope for Rate Cuts

US inflation rose less than expected in April 2024, marking a positive economic shift at the start of the second quarter. The US consumer price index (CPI) increased by 0.3% sequentially, according to data released by the Labor Department's Bureau of LaborStatistics on May 15. This easing inflation is fueling optimism on Wall Street for a potential interest rate cut by the US.

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Federal Reserve in September.

In the 12 months through April, the CPI increased 3.4% year-on-year (YoY), slightly down from a 3.5% rise in March 2024. This marks a significant decline from the peak of 9.1% in June 2022, though the rate of decline had slowed in recent months. April’s data represents the first month of slowing annual inflation since January 2024.

Core CPI Shows Signs of Cooling

The core CPI increased 3.6% over the past year, marking the smallest YoY gain since April 2021 and down from a 3.8% rise in March. On a three-month annualized basis, the core CPI increased by 4.1%, the lowest rate since the beginning of the year.

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Key Contributors to Inflation

Shelter prices, the largest category within services, and gasoline prices were significant contributors to April's inflation. Shelter costs rose by 0.4% for the third consecutive month, while gasoline prices increased by 2.8%. Combined, these categories accounted for over 70% of the CPI increase. 

Owners’ equivalent rent, a key component of the CPI, also saw a 0.4% rise.Conversely, food prices remained stable, with supermarket prices dropping 0.2%. Notable decreases were seen in eggs (down 7.3%) and several other grocery items, while prices for cereals, bakery products, and dairy saw slight increases.

Other significant changes included a 1.8% increase in motor vehicle insurance costs, continued price rises in personal care, recreation, and education services, and a 0.4% increase in healthcare costs due to higher hospital service fees. Used car and truck prices fell for the second month in a row, and new motor vehicle prices declined for the third consecutive month.

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Impact on Fed Policy

The easing inflation data bolsters hopes for a potential rate cut by the Federal Reserve later this year. This sentiment was supported by additional data showing that retail sales were unexpectedly flat in April, indicating a cooling in domestic demand. A separate report from the Commerce Department revealed that retail sales remained unchanged in April after a 0.6% increase in March, suggesting a slowdown that could be welcomed by Fed officials aiming for a "soft landing" for the economy.

As the US economy continues to navigate the complexities of inflation control, the latest data offers a cautiously optimistic outlook, with experts and markets alike looking for more concrete signs of sustained downward trends in inflation in the coming months.

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