The Consumer Price Index (CPI) rose 0.3% month-on-month (m/m) in April, a tick below the consensus forecast. On a twelve-month basis, CPI inflation edged lower by 0.1 percentage points to 3.4%.
- Higher gasoline prices (+2.8% m/m) were partly responsible for the uptick in headline inflation. Meanwhile, food prices were flat last month and are up 2.2% on the year.
Excluding food & energy, core prices rose a ‘soft’ 0.3% m/m (0.29% unrounded), meeting the consensus forecast and marking a slight deceleration from the 0.4% m/m gains registered in each of the prior three months. Relative to April 2023, core inflation was up 3.6% – down 0.2 percentage points from the March reading.
Core services prices rose 0.4% m/m, which was the softest monthly gain since last December. Shelter costs matched March’s monthly gain of 0.4% and accounted for nearly two-thirds of last month’s rise in core inflation.
- Price growth for non-housing services ‘slowed’ to a still strong 0.5% m/m gain (from 0.7% m/m in March). Both the three-and-six-month annualized rates of change on ‘supercore’ remain north of 6%. Motor vehicle insurance costs have been a big part of supercore inflation recently, rising 1.7% m/m and are up 23% over the past year.
Goods prices fell for a second consecutive month, with April’s pullback attributed to a decline in both new (-0.4% m/m) and used (-1.4% m/m) vehicle prices as well as a further decline in household furnishings (-0.4% m/m).
Key Implications
After three months of hotter-than-expected readings, the April inflation report delivered little in the way of surprises. Thanks to a further decline in goods prices and some cooling in services price pressures, core inflation recorded its softest monthly gain of the year. However, one ‘good’ month does not undo Q1’s string of hotter inflation readings. Both the three-and-six-month annualized rates of change on core are hovering around 4%, which is almost a percentage point higher than where they sat in December 2023.
Mapping today’s release into core PCE inflation – the Fed’s preferred inflation gauge – suggests we’re likely to see another 0.3% m/m gain in April, which will keep the year-ago measure unchanged at 2.8%. As we noted in a recent publication, low base readings from H2-2023 will prevent the 12-month of change on core PCE from making much (if any) progress this year. However, the 3-and-6-month inflation trends are expected to gradually cool through the second half of the year and likely be in a place by late-2024 where policymakers would feel comfortable to begin dialing back the policy rate.
