US Federal Reserve Chairman Jerome Powell during a press conference after the Federal Open ,
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The April consumer price index report indicated that inflation may ease from the higher levels reported for February and March. However, inflation in 2024 still remains higher than the low inflation reported at the end of 2023.
Overall, April’s inflation data certainly maintains expectations of lower interest rates in 2024. Despite this development, the Federal Open Market Committee will need more data to have confidence that inflation is moving toward its 2% annual inflation target.
Recent inflation data
In April 2024, CPI inflation rose 0.3% and stood at 0.3% excluding food and energy. That’s below the 0.4% headline monthly growth in February and March, but above the 0.1% to 0.2% inflation often seen in the second half of 2023. The FOMC’s annual inflation target of 2% roughly matches ongoing inflation below 0.2%. monthly rate.
April inflation data suggests that the inflation picture may be improving but is not yet fully on track for the FOMC’s target. Importantly, core inflation fell to 3.6% annual rate in April. This is the lowest level for this metric since inflation increased in March 2021. Headline inflation remains more mixed at 3.4% and remains above levels seen from time to time in 2023. Core CPI inflation appears to have returned to a relatively consistent downward trend. In contrast, headline inflation has moved sideways in a fairly narrow range since last summer.
components of inflation
Housing, a key component of the CPI calculation, did not cool as much as optimists would have expected in the April report. It increased by 0.4% in April, which is comparable with recent months and growing at a 5.5% annual rate. If shelter costs decline, this may enable inflation to reach the FOMC’s 2% target.
Elsewhere, vehicle prices continued to fall and food prices away from home also saw declines. Generally, inflationary pressure continues to come mostly from services. Transportation services, especially car insurance, are seeing a steep rise in prices. However, prices of medical and household services are showing signs of softening.
future inflation release
The upcoming inflation release could be more encouraging for the FOMC. This is according to the Cleveland Fed’s latest Nowcast model. The personal consumption expenditure price index for April will be updated on May 31. Nowcast models project a 0.1% to 0.2% increase in the monthly PCE price index, which would be viewed favorably by FOMC officials.
For the next CPI report covering the month of May, headline inflation is currently expected to rise by 0.1% monthly and core inflation by 0.3%. If that continues now, it may be less comforting to FOMC officials, but it still suggests inflation is relatively under control.
upcoming fed meetings
With the jobs market performing relatively well, the FOMC is inclined to take a wait-and-see approach to upcoming inflation data. The FOMC wants more evidence that inflation is on track to reach 2%. Rates are expected to remain steady at the Fed’s upcoming June meeting. However, fixed income markets still see two interest rate cuts in 2024 as a possible outcome. There are some encouraging signs in the April CPI report, which suggests that we may see interest rate cuts later this year.
