According to the April consumer price index (CPI) report, inflation climbed 0.3% in April, a slight deceleration from March’s 0.4% reading. This put the annual inflation rate at 3.4%, cooler than March’s 3.5% pace and in line with forecasts.
“Core” inflation, which excludes the volatile Food and Energy categories, increased 0.3% over the month, snapping a 3-month streak of 0.4% monthly increases. This lowered the annual core rate to 3.6% from 3.8%, also in line with projections.
Surprisingly, shelter and gasoline costs made up more than 70% of the total inflation across all items. Indeed, energy costs jumped 1.1% in April, while shelter costs increased 0.4%.
As usual, the CPI’s importance lies in its implications for the Federal Reserve’s monetary policy trajectory. Many on Wall Street have eagerly waited for the Fed to follow through on its promise to cut the benchmark rate three times this year, to no avail thus far. Unfortunately, today’s data will likely do little to move the scale.
What Does the April CPI Mean for Rate Cuts This Year?
While the CPI showed a slight deceleration in inflation from March to April, following yesterday’s disappointingly hot producer price index (PPI) report, it’ll take more than one mildly promising inflation reading to push the Fed towards rate reductions.
Indeed, wholesale prices increased at their fastest rate in a year in April. As producers pay more to manufacture goods, these steeper costs tend to be passed over to consumers via higher prices. As such, some believe consumer inflation may get worse before it gets better. Because of this, the Fed will likely be looking for several months of continued disinflation before opting to cut rates.
With inflation continuing to prove stubborn, the central bank will likely keep rates elevated. Some have already abandoned the idea of a rate cut this summer, holding out hope that the first rate reduction will come in September. Others believe the Fed may not cut rates at all this year.
This includes Fed Governor Michelle Bowman, one of the most notoriously hawkish members of the Federal Open Market Committee (FOMC).
“I, at this point, have not written in any cuts” for 2024, Bowman told Bloomberg News earlier this week. “I’ve sort of had an even expectation of staying where we are for longer. And that continues to be my base case.”
According to the CME FedWatch Tool, interest rate traders are pricing in a less than 9% chance of a cut at the upcoming June policy meeting and a roughly 33% chance of a cut in July.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
