The numbers: U.S. consumer prices rose 0.4 % in April, up from a 0.1% gain in the prior month, the Labor Department said Wednesday.
However, over the past 12 months, consumer inflation increased 4.9% and that’s down from a 5% year-on-year increase in March and also down from a 9.1% rate last summer, which was the fastest pace since 1981.
Economists polled by the Wall Street Journal had forecast the CPI increasing 0.4% and advancing 5.0% over the past year.
Inflation minus food and energy, the so-called core rate, rose 0.4% in April for the second straight month, matching economists’ forecasts. The core rate increased 5.5% over the past 12 months down from a 5.6% gain in March and that’s down from a high of 6.6% last fall.
Key details: Shelter costs saw the largest increase in headline inflation but they are coming down. The 0.4% gain in shelter in April was the lowest in a year.
Used car prices spiked in April and so did gasoline prices.
The core rate gain was also boosted by car insurance and recreation.
Airline fares fell in April.
The CPI data is expected to play a big role in whether the Federal Reserve hikes interest rates again in June though markets are expecting no change in rates.
Big picture: On a three-month annualized basis, headline inflation was up 3.2% while core inflation was 5.1%.
Core services excluding all rent rose only 0.1% in April, a smaller rise than 0.4% in March, said Omair Sharif, founder of Inflation Insights.
Fed officials still believe inflation is too high. They don’t think inflation will return to the 2% target for a few years.
Economists think that there will be friendlier year ago comparisons coming in the next few months as big increases from last year roll off the the annual data.
What they are saying? Inflation remains stubbornly firm, but there are some encouraging signs in this data we haven’t seen in a long time. Some of the biggest drivers of inflation this month seem like they may be indiosyncratic (e.g. gasoline and used cars, while other persistent drivers of inflation over the past 2 years show some signs of softening,” said Tom Simons, economist at Jefferies, in a note to clients.
Oren Klachkin, economist at Oxford Economics, said: “Investors have been betting on Federal Reserve rate cuts later this year but we think that view is misguided. We think the Fed will maintain a hawkish bias through year-end and won’t hesitate to raise rates again if inflation and the labor market data surprise strongly to the upside. They are also navigating in the dark since the brunt of tighter lending conditions hasn’t yet hit the economy.”
Market reaction: Financial markets welcomed the drop in annual inflation. Stocks
DJIA,
opened higher on Wednesday. The yield on the 10-year Treasury note
TMUBMUSD10Y,
dropped to 3.46%.
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