Jerome Powell, chairman of the US Federal Reserve, during a news conference following a Federal Open ... [+]
April’s Consumer Price Index report signals that inflation could be easing from higher levels reported for February and March. However, inflation in 2024 so far remains higher than the low inflation reported in late 2023.
Overall, April’s inflation figures certainly preserve hopes for lower interest rates in 2024. Despite this development, more data will likely be needed to give the Federal Open Market Committee confidence that inflation is moving to toward its 2% annual inflation target.
Recent Inflation Figures
In April 2024, CPI inflation rose 0.3% and remained at 0.3% with food and energy removed. That’s lower than the 0.4% headline monthly increases in February and March, but above the 0.1% to 0.2% inflation seen frequently in the second half of 2023. The FOMC’s annual inflation target of 2% broadly corresponds to inflation running just under a 0.2% monthly rate.
April’s inflation data suggests that the inflation picture may be improving but is not yet fully on track for the FOMC’s target. Importantly, core inflation fell to a 3.6% annual rate in April. That’s the lowest level for this metric since the inflation surge bargain in March 2021. Headline inflation remains more mixed at 3.4% and remains above levels seen periodically in 2023. Core CPI inflation appears to have returned to a relatively consistent declining trend. In contrast, headline inflation has moved sideways in a fairly narrow range since last summer.
Components Of Inflation
Shelter as a key component of the CPI calculation did not cool as much as optimists might have hoped in April’s report. It rose 0.4% for the month of April, which is comparable with recent months and is rising at a 5.5% annual rate. If shelter costs were to cool, that might enable inflation to reach the FOMC’s 2% target.
Elsewhere, vehicle prices continue to decline and food away from home saw price declines, too. Generally, inflation pressure continues to come mostly from services. Transportation services, especially car insurance, are seeing steep price increases. However, medical and household services are showing signs of cooling prices.
Future Inflation Releases
Upcoming inflation releases may be more encouraging for the FOMC. That’s according to the latest nowcast models from the Cleveland Fed. The Personal Consumption Expenditures Price Index will be updated for April on May 31. Nowcast models project the monthly PCE price index increase to increase by 0.1% to 0.2%, which would likely be viewed favorably by FOMC officials.
For the next CPI Report covering the month of May, nowcasts currently expect a 0.1% monthly increase in headline inflation and a 0.3% rise in core inflation. If that nowcast holds, it may be less comforting to FOMC officials, but still suggests inflation is relatively contained.
Upcoming Fed Meetings
With the jobs market performing relatively well, the FOMC is inclined to take a wait-and-see approach to upcoming inflation data. The FOMC wants more evidence that inflation is on track to hit 2%. Rates are expected to be held steady at the Fed’s upcoming June meeting. However, fixed income markets still view up to two interest rate cuts in 2024 as the likely outcome. The April CPI report contains some encouraging signs, suggesting we could see interest rate cuts later this year.
