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, more data will be needed to give the Federal Open Market Committee confidence that inflation is moving to its 2% annual inflation target.
Recent Inflation Figures
For the month of April 2024, CPI inflation rose 0.3% and remained at 0.3% when food and energy are 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 is 2%. That 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 to April 2024. That’s the lowest level for this metric since the inflation surge. Headline inflation reamins more mixed at 3.4% and remains above levels seen periodically in 2023. Core
Core
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, 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 be 0.1% to 0.2% which would likely be viewed favorably by FOMC officials.
For the next CPI Report for the month of May, nowcasts currently expect a 0.1% monthly increase in headline inflation and 0.3% 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. Today’s inflation data contains some encouraging signs, suggesting we could see interest rate cuts later in 2024.
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