Inflation eased in April as lower prices for food and used cars offset further increases in rent and gasoline.
After a notable acceleration in inflation earlier this year, the report revealed further progress in the fight to contain prices, with underlying inflation indicators reaching a three-year low.. Still, that may not be enough to convince the Federal Reserve to cut rates in the coming months.
According to the Labor Department’s consumer price index, overall prices rose 3.4% year-on-year, slowing from the 3.5% rise in March. On a month-on-month basis, costs rose by 0.3%, lower than the 0.4% rise in the previous month.
What is current US core inflation?
Core prices, which exclude volatile food and energy items that the Fed monitors more closely, rose 0.3%, below the 0.4% rise in March. As a result, the annual inflation rate fell from 3.8% to 3.6%, the lowest level since April 2021.
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Is inflation expected to fall?
After easing rapidly last year, inflation unexpectedly accelerated in the first quarter, but is still well below the 40-year high of 9.1% in June 2022.
As pandemic-related supply chain issues are resolved, prices for items such as used cars, furniture and home appliances that soared during the medical crisis are falling. However, the cost of services such as rent, car insurance, repairs, and recreation has been steadily rising. One reason for this is that wage growth is gradually slowing due to the labor shortage caused by the new coronavirus infection.
By December, Barclays expects annual inflation to slow to 3.1% and its core CPI measure to fall to 3.3%, still well above the Fed’s 2% target.
Are interest rates expected to fall?
As of late March, the Fed had expected three rate cuts this year as inflation slowed significantly in 2023. From March 2022 to July 2023, the Fed raised its short-term benchmark interest rate from near zero to the highest level in 23 years. 5% to 5.25% to control inflation.
However, with three consecutive months of high inflation in March 2024, Fed Chair Powell and other central bankers believe that interest rates will remain high for an extended period of time while awaiting a more sustainable transition to the Fed’s 2% target. He declared that there was a high possibility that it would stop.
Powell reiterated that message at a conference in Amsterdam on Tuesday, saying: “We need to be patient and let our restrictive policies work.”
While a report earlier this month showed that employers added a solid 175,000 jobs in April, this was a significant downward revision from the first quarter and some economists said He said that expectations for further interest rate cuts may have risen again. But Powell said Tuesday that the labor market is “very, very strong.”
Futures markets currently expect the Fed to cut rates for the first time in September and again in December. Before the resurgence in inflation, the bank was betting on a total of three rate cuts in 2024, with the first rate cut in June.
Why are U.S. gas prices rising again?
Gasoline prices rose 2.8% in April, marking the third consecutive increase after four consecutive months of declines. Demand is increasing as the spring driving season gears up and refiners switch to more expensive summer blends.
