US consumer prices rose again in April, and core inflation measures remained elevated, indicating that further declines in inflation are likely to be slow and bumpy.
Prices rose 0.4% from March to April, the government announced on Wednesday, after climbing 0.1% from February to March. Compared to a year ago, prices rose by 4.9%, a slight drop in inflation compared to the 5% recorded in March.
April’s data provided evidence of cooling inflation, a sign that sent stock prices higher in morning stock trading. Food prices fell for a second month in a row. And the cost of many services, including airfares and hotel rooms, has plunged. Although apartment rents increased in April, they did so more slowly than in previous months.
Federal Reserve policymakers are watching services prices closely, and subdued April data could lead them to do what they talked about after their meeting last week: suspend interest rate hikes they have imposed since March 2022 in their drive to control inflation, while assessing the economic impact that higher borrowing costs have had.
Measured year-over-year, last month’s decline in annual inflation was less than in previous months, underscoring that consumer price increases may not return to the target of 2 % of the Fed until at least well into next year. Excluding volatile energy and food costs, so-called core prices rose 0.4% from March to April, as they had done from February to March. This is the fifth month in a row that they have increased by at least 0.4%. Underlying prices are considered a better indicator of longer-term inflation trends.
Compared to a year ago, core inflation stood at 5.5%, just below its level of 5.6% in March. “This is core inflation that still persists at a high level,” observed Blerina Uruci, chief U.S. economist for fixed income at T. Rowe Price. “This report puts the Fed on track to keep interest rates high this year. »
For consumer staples, Wednesday’s inflation report was mixed. Gasoline prices jumped 3% in April alone. In contrast, prices for groceries fell for the second month in a row. Prices for used motor vehicles jumped 4.4% after nine months of decline. Airfares, however, fell 2.6% in April, and hotel prices fell 3% after four consecutive monthly increases.
The Fed is paying particular attention to a measure of services inflation, which covers items such as restaurants, hotel stays and entertainment, and which has remained chronically high for much of the past year. . This measure, which excludes energy services and housing, rose just 0.1% from March to April and 5.2% from a year ago. It had passed the 6% mark earlier this year.
Last week, the Fed signaled that it may suspend rate hikes, after imposing 10 consecutive hikes, to take time to assess the impact of rising borrowing costs on the economy. The full economic impact of the hikes, however, may not become apparent for months.
Moderate enthusiasm on the stock market
The New York Stock Exchange ended in disarray on Wednesday, satisfied with the slowdown in US inflation, but aware that it is still high, and concerned about the lack of progress in the debt ceiling file. The Dow Jones fell 0.1%, the Nasdaq index gained 1% and the broader S&P 500 index rose 0.5%.
“Even if inflation persists at elevated levels, this moderate slowdown provides room for the Fed to leave rates unchanged,” said Kathy Bostjancic of Nationwide. Wall Street is counting on a much more radical scenario and anticipates at least three rate cuts by the end of the year.
These projections shook up the bond market, which saw the yield on 2-year US government bonds, more representative of market expectations in terms of monetary policy than their 10-year equivalent, fall to 3.91%, against 4 .02% the day before closing.
But the New York place did not get carried away. The consumer price index “didn’t move the market much,” UniCredit’s Edoardo Campanella pointed out, “because core inflation [hors énergie et alimentation] remains too high for the Fed’s liking. As a result, the economist, like others, expects the key rate to remain stable until 2024.
For Chris Low of FHN Financial, the lack of momentum on Wall Street is also linked to the political crisis over the debt ceiling. “It was not worth panicking six months ago, but now people understand that there is barely a month left, and it is becoming a subject,” the analyst pointed out.
With Agence France-Presse