Consumer price index data for April showed that core inflation eased last month, while retail sales fell by more than expected. The S&P 500 opened solidly higher in Wednesday’s stock market action following CPI inflation data, as the market weighed the implications of the Fed rate-cut outlook.
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CPI inflation report hit and miss
The overall consumer price index rose 0.3% in the month, matching forecasts. The 12-month CPI inflation rate also declined to 3.4%, which is in line.
Core CPI, which strips out volatile food and energy prices, rose 0.3% from March levels, in line with estimates. The annual core CPI inflation rate declined to 3.6% from 3.8% in March, as expected. The core CPI inflation rate reached a 40-year high of 6.6% in September 2022.
On an overall basis, core CPI rose 0.29% in April, better than most forecasts, many of which were either side of 0.35%.
Core goods prices fell 0.1% this month, while non-energy service prices rose 0.4%.
Retail Sales
Overall retail sales were unchanged in April, beating forecasts for a 0.4% gain. The initially reported 0.7% gain in March was revised down to 0.6%.
Excluding autos, retail sales rose 0.2%, in line with expectations. Nonauto retail sales were revised up from a strong 1.1% gain initially reported to 0.9%.
More CPI Details
Energy prices rose 1.1% this month. Food prices remained unchanged, as a 0.3% rise in prices of food away from home offset a 0.2% decline in prices of food consumed at home.
New vehicle prices declined 0.4%, as the price of used cars and trucks declined 1.4%.
Rents and owner-equivalent rents both increased 0.4%, while hotel and motel rates declined 0.2%.
Prices of medical care services rose 0.4%. Despite a 0.8% decline in airline fares, prices for transportation services rose 0.9%.
CPI vs PCE Price Index
The combination of Tuesday’s producer price index and today’s CPI points to good news for the Fed’s primary inflation rate, the core PCE price index, which uses data from both series.
“We estimate from today’s CPI data and tomorrow’s PPI numbers that core PCE rose 0.24% in April,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics.
While CPI airline fares fell 0.8% on the month, the PCE price index uses a PPI measure of airline passenger services, which fell 3.8% in April.
Shepherdson said the PPI’s 0.1% increase in auto insurance prices was a “silver lining” for the core PCE price index, even though CPI auto insurance prices rose 1.8%.
Fed rate-cut prospects
After the CPI inflation data, markets were pricing in a 31% chance of a Fed rate cut by the July 31 meeting, down from 33% before the report. However, the likelihood of a rate cut increased from 68% to 71% by the September 18 Fed meeting.
S&P 500
The S&P 500 rose 0.8% after the release of April CPI inflation data, hitting a record intraday high. The S&P 500 closed 0.5% higher on Tuesday after some encouraging producer price index data on health care inflation. The S&P 500 closed just 0.15% below its March 28 all-time high.
The 10-year Treasury yield fell seven basis points to 4.37%.
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