Key reports Tuesday and Wednesday indicate that inflation is slowly ebbing. The Consumer Price Index, released Wednesday, was down .1 percent year-over-year at 3.4 percent compared to March’s 3.5 percent..
The CPI report was preceded Tuesday by the Producer Price Index, which posted a .5 percent increase. However, Federal Reserve Chair Jerome Powell said Tuesday that the PPI did not raise concerns.
No Interest Rate Change Anticipated
In Amsterdam to address a meeting of the Foreign Bankers Association, Powell tamped down inflation fears saying the PPI numbers were “mixed” considering that March figures were revised lower.
Powell said that he does not see an interest rate increase coming from the Fed’s next meeting. Instead, he urged patients, saying he expected rates to stay in the 5.25 to 5.5 percent range longer than previously anticipated.
What Are the PPI and CPI
The PPI measures what it costs businesses to provide goods and services to their customers. On the other hand, the CPI gauges what it costs consumers to purchase those goods and services.
Both the CPI and PPI reports are issued by the Bureau of Labor Statistics each month and measure changes month-to-month and year-over-year. Both are viewed as measures of inflation.
Services accounted for about 75 percent of the PPIs .5 percent jump.
Food Prices Fall
Grocery prices declined in April dropping .2 percent from March when prices increased .1 percent. Over the last year the food from home portion of the CPI is up a modest 1.1 percent.
The CPI monitors six major grocery food groups. In April, prices dropped in three of those food groups. Meat, poultry, fish and egg prices dropped by .7 percent. Egg prices flipped from March to April. The CPI for last month showed eggs up 4.6 percent. April egg prices fell 7.3 percent.
In addition, the price of fruits and vegetables slid .8 percent while non alcoholic beverages declined .2 percent.
Conversely, cereals and bakery goods rose .6 percent last month while dairy and related products increased .1 percent.
Gas Prices Up, Heading Down
Gas prices were a notable headwind in the April CPI. Seasonally adjusted, the price at the pump was up 2.8 percent. But, that increase is due, in part, to speculation. Many futures traders expected supply disruptions due to the conflict between Israel and Gaza. However, there have been no disruption in the oil supply chain.
Also countering the April rise in gas prices is a recent turn in the market.
Crude oil futures have declined significantly since late last month to a three month low. Increased supply is credited with pushing prices down. U. S. commercial crude oil stockpiles rose 7.3 million barrels late last month. At the same time the United Arab Emirates has announced an increase in production.
Change in Core Index
Deep in the weeds of the CPI report was a heartening sign for consumers and the Fed.
The core index posted the lowest yearly increase since 2021. Volatile components, such as food and fuel are excluded from the core index to get a better read on the trend of inflation and prices. That index rose 3.6 percent in April, a drop from March’s 3.8 percent.
Some areas that have had significant inflationary impact showed signs of moderating in Wednesday’s report.
Both health care costs and auto insurance costs continued to rise in April. However, both rose less than they did in March. Car insurance was up 1.8 percent in April compared to a 2.6 percent increase in March. The health care index rose .4 percent in April while the March figure was .5 percent.
One part of the economy that shows no sign of moderating is housing. The shelter index has increased 5.5 percent over the last 12 months. The increase in housing accounts for two-thirds of the increase in inflation year-to-year.
Looking Ahead
Inflation was on a downhill slide at the end of last year. However, the first quarter of 2024 saw prices and inflation stalled. That raised a question as to when or if the Fed would cut interest rates this year.
Before the CPI and PPI were released this week, the futures market, large investment concerns, talking heads on television and anybody else with an opinion seemed to feel interest rate cuts would not come before September. Many prophecies are self-fulfilling and that is probably the case here.
However, the April CPI could be showing the way to lower inflation which could prompt the Fed to drop interest rates below the current 5.3 percent.
Right now, it seems, we will just have to wait and see.
Read the full article here
