Minneapolis (CNN) It’s been a two-year battle with sorely high prices, but the light at the end of the tunnel just got a little brighter for consumers.
Annual inflation continued its slow but steady deceleration in April, according to the latest CPI released on Wednesday.
According to the Bureau of Labor Statistics, CPI rose 4.9% in the 12 months to April, a slightly slower increase than March’s 5%. It was below economists’ expectations that the number would remain unchanged.
It’s the tenth straight month that the headline CPI rate has slowed, and it’s at its lowest since April 2021 – when that bout of painfully high inflation began to rise.
Excluding food and energy costs, which tend to be more volatile, core CPI was flat at 5.5% in the 12 months to April.
On a monthly basis, both the headline and core indexes rose 0.4%, in line with forecasts by economists, some of whom expected higher fuel and used car prices to provide some upward pressure.
“It’s tough and bumpy, but make no mistake, inflation is cooling,” Gregory Daco, EY’s chief economist, said in a statement.
A (slight) relief for consumers
April data showed that the largest monthly gains were in the main categories of used cars and trucks (up 4.4% from March but less than 6.6% yoy); and gasoline (up 3% from March but down 12.2% annually). Gas prices, which normally rise in April on higher travel activity, rose in April after OPEC+ announced a surprise production cut.
Housing costs, which make up a good chunk of the CPI — about a third of the main index and 40% of the core index — rose 0.4% for the month, marking the smallest monthly increase since January 2022, which economists are expected to see the large category “tipped over” later this year and better reflects the declines in the rental market. There is a significant lag in CPI’s calculation of rents compared to their behavior in the market as the BLS rarely collects the data and rents in leases change.
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A welcome – albeit slight – drop came in the food prices category, which fell 0.2% over the month, helping push annual inflation there to 7.1%. It’s the second month in a row that home food prices have fallen. Headline food inflation (including higher prices in restaurants) was flat for the second month, its weakest consecutive reading since mid-2019, Daco noted.
Prices of key staples such as meat, fruits and vegetables, and dairy continued to fall monthly.
An “eye of the beholder” report
For the past two years, American budgets have been squeezed by high inflation, which peaked at a 40-year high last summer and has been slowly declining amid a protracted Federal Reserve hike-rate campaign. Since March last year, the US Federal Reserve has raised interest rates ten times in a bid to cool inflation by curbing demand.
These anti-inflation measures make it more expensive and difficult to borrow money, buy a house, buy a car, or start a business.
Federal Reserve Chair Jerome Powell warned that the downward path for inflation will be slow and bumpy and that it will “take some time” for annual inflation rates to return to more sustainable levels.
Andrew Patterson, senior economist in Vanguard’s investment strategy group, said: “This appears to be another ‘eye of the beholder’ report with good news for both sides of the inflation debate – whether or not we see enough downside for the Fed. “pause.”
The next Fed policy meeting is in a month. Markets are anticipating an 87 percent chance central bankers would pause a rate hike at the June meeting, according to the CME-FedWatch tool Wednesday morning.
“The Fed is yet to declare victory on the inflation front,” said Ryan Sweet, chief US economist at Oxford Economics. “They will not be able to announce victory for a long time. It will be a few more months before we see any significant easing on the inflation front.”
The Fed is closely watching how inflation behaves in the services sector, where price hikes remain “stubborn” and may not abate anytime soon as they are more tied to workers’ wage growth. “Supercore” service-sector inflation, which accounts for the housing shortage, slowed to 5.2% year-on-year in April, said Megan Greene, global chief economist at the Kroll Institute.
“Which at least went in the right direction,” she said.
By the June meeting, the Fed will have more data on inflation, housing, manufacturing and jobs. On Thursday, that data will include the latest figures on producer price inflation (which has cooled significantly in recent months) and jobless claims (which are on an upward trend).
“I think the Fed will go ahead for now and leave rates where they are through year-end,” Greene said.
“This report doesn’t do much to change that. Inflation would always be bumpy on the way down; this report was headed in the right direction, but that doesn’t mean next month won’t be headed in the wrong direction.”