By Chris Dorrell
Figures from the Bureau of Labor Statistics showed the consumer price index (CPI) rose 0.3 per cent month-on-month in April, slightly below the 0.4 per cent expected by economists.
This brought the annual rate of inflation to 3.4 per cent, down from March’s figure of 3.5 per cent and in line with expectations.
“The index for shelter rose in April, as did the index for gasoline. Combined, these two indexes contributed over seventy per cent of the monthly increase in the index for all items,” the Bureau of Labor Statistics said.
On an annual basis, core inflation – which strips out volatile components such as food and energy – fell to 3.6 per cent in April, down from 3.8 per cent last month.
Although today’s figures came in line marginally below expectations, stubborn inflation at the start of the year has forced markets to reconsider when the Fed is likely to start cutting interest rates.
At the beginning of the year, investors thought that the Fed would start cutting rates in March, with as many as six cuts priced in for the remainder of the year.
However, inflation came in ahead of expectations for three consecutive months between January and March as the economy remained surprisingly resilient to the Fed’s rate hikes.
Figures out yesterday showed that producer prices increased 0.5 per cent in April, exceeding the 0.3 per cent expected by economists. The labour market also remains very tight.
Markets now think the Fed will only be in a position to cut interest rates in September with some economists even raising the possibility of a further rate hike.
At its latest meeting earlier this month, the Fed acknowledged concerns about the persistence of inflation. “In recent months, there has been a lack of further progress toward the Committee’s two per cent inflation objective,” the Fed said.
