The U.S. Department of Labor released a report on Wednesday (May 15th) showing that inflation slowed slightly in April. The Consumer Price Index (CPI) increased by 3.4% year-on-year, while the core CPI saw the smallest increase since April 2021.
According to the data from the Department of Labor, the CPI, which measures the cost of goods and services, increased by 3.4% year-on-year in April, lower than March’s 3.5%. The CPI increased by 0.3% month-on-month, slightly below the Dow’s forecast of 0.4%.
Excluding volatile food and energy items, the core CPI in April rose by 0.3% month-on-month and 3.6% year-on-year, marking the lowest increase since April 2021. Both indicators met expectations.
Despite the slight slowdown in inflation in April, tens of millions of Americans still face price pressures. The inflation in April was mainly driven by increased costs of housing and energy.
The energy index rose by 2.6% year-on-year in April, and 1.1% month-on-month; housing costs increased by 5.5% year-on-year in April, with a 0.4% increase month-on-month.
Housing costs have been a challenge for the Federal Reserve in curbing inflation. CNBC, the U.S. financial news outlet, stated that the high year-on-year and month-on-month growth rates of housing costs are concerning for the Federal Reserve trying to push overall inflation rates back to 2%.
Food prices rose by 2.2% year-on-year in April, with no change month-on-month; new car prices decreased by 0.4% year-on-year and month-on-month; used car prices fell by 6.9% year-on-year and 1.4% month-on-month; transportation services rose by 11.2% year-on-year and 0.9% month-on-month; and medical care services increased by 2.7% year-on-year and 0.4% month-on-month.
The rise in inflation is bad news for workers, as after adjusting for inflation, workers’ incomes decreased by 0.2% month-on-month in April, with actual income only growing by 0.5% year-on-year.
While the CPI data released on Wednesday may provide some hope for the Federal Reserve that inflation is resuming its downward trend, officials want to see more data to have the confidence needed to consider rate cuts.
According to Bloomberg, Kathy Jones, Chief Fixed Income Strategist at Charles Schwab, said, “This certainly opens the door for rate cuts later this year,” but “the Fed needs to see more data indicating that inflation is declining before taking action.”
In recent weeks, the Federal Reserve has emphasized the need for more evidence that inflation is sustainably moving towards its 2% target before deciding on rate cuts.
Federal Reserve Chair Powell acknowledged in a speech on Tuesday that the inflation data at the beginning of 2024 exceeded expectations, and hinted that the central bank may keep current interest rates unchanged for longer than anticipated.