Figures from the Bureau of Labor Statistics showed the consumer price index (CPI) rose 0.3 per cent month-on-month in April, slightly below the 0.4 per cent expected by economists.
This brought the annual rate of inflation to 3.4 per cent, down from March’s figure of 3.5 per cent and in line with expectations.
“The index for shelter rose in April, as did the index for gasoline. Combined, these two indexes contributed over seventy per cent of the monthly increase in the index for all items,” the Bureau of Labor Statistics said.
On an annual basis, core inflation – which strips out volatile components such as food and energy – fell to 3.6 per cent in April, down from 3.8 per cent last month. This was the first time in six months that core inflation had eased.
Following the release traders moved to price in two interest rate cuts this year with cuts expected to start in September.
“All things considered, this is consistent with the Fed cutting interest rates in September,” Paul Ashworth, Chief North America Economist said.
Although today’s figures came in line marginally below expectations, stubborn inflation at the start of the year has forced markets to reconsider when the Fed is likely to start cutting interest rates.
At the beginning of the year, investors thought that the Fed would start cutting rates in March, with as many as six cuts priced in for the remainder of the year.
However, inflation came in ahead of expectations for three consecutive months between January and March as the economy remained surprisingly resilient to the Fed’s rate hikes.
Progress on inflation has slowed since last summer
Source: Trading Economics
At its latest meeting earlier this month, the Fed acknowledged concerns about the persistence of inflation. “In recent months, there has been a lack of further progress toward the Committee’s two per cent inflation objective,” the Fed said.
Figures out yesterday showed that producer prices increased 0.5 per cent in April, exceeding the 0.3 per cent expected by economists. The labour market also remains very tight.
In the past few weeks the prospect of an interest rate hike has even emerged, although this now looks very unlikely.
Given the signs of stubborn inflation in recent months, Michael Brown, senior research strategist at Pepperstone, said today’s inflation figures were unlikely to bring cuts any closer.
“One swallow doesn’t make a summer, hence while today’s data will be welcomed, it is – on its own – not enough to provide policymakers with the required confidence to deliver a rate cut just yet,” he said.