Finally, some good news on inflation.
The consumer price index rose 3.4 percent in April from a year earlier, up from 3.5 percent in March, the report said. The Labor Ministry said Wednesday. The “core” index – which excludes volatile food and fuel prices to give a sense of the underlying trend – rose 3.6 percent last month, up from 3.8 percent a year earlier. months earlier. This is the smallest annual increase in core inflation since the start of 2021.
The report follows three straight months of uncomfortably rapid price increases that have rattled investors and policymakers worried about the Federal Reserve. Economists warned that a month of encouraging data was far from enough to allay those concerns. But they said the data should allay fears, at least for now, of inflation reaccelerating.
“I would say this is a small step in the right direction,” said Stephen Stanley, chief U.S. economist at Santander.
Overall and underlying prices rose 0.3 percent from the previous month, down from 0.4 percent in February and March.
Inflation fell rapidly last year, raising hopes that the Fed would be close to succeeding in its efforts to curb rising prices without causing a recession, and that the central bank might soon begin cutting interest rates. interest, which are currently set at around 5.3 percent. But progress stalled in the first three months of the year and investors all but gave up hope of a rate cut before September.
Wednesday’s inflation report alone is unlikely to change those expectations. But it could be a step toward giving policymakers confidence that inflation is returning to normal, something they have said they need before they start cutting rates. And it would likely further reduce the already slim chances that policymakers decide to increase rates rather than cutting them.
“I think the Fed will breathe a sigh of relief, but at the same time, there’s still work to do,” said Sarah House, senior economist at Wells Fargo.
Investors applauded the news. The S&P 500 index was up about 0.7 percent as of 11 a.m. The yield on two-year Treasuries, which is sensitive to changes in interest rate expectations, fell sharply after the figures were released, as investors appeared to have rethought how long interest rates should last. stay high.
The report also comes as a welcome break for the White House after a string of poor inflation data that helped fuel voter discontent with President Biden’s handling of the economy.
“I know that many families are struggling and that while we have made progress, we still have much to do,” Mr. Biden said in a statement released by the White House. He called reducing inflation a “top economic priority.”
Wednesday’s data showed notable progress on several fronts. Prices of new and used cars as well as airfares fell sharply in April. So has the price of groceries, which has long been one of the most painful categories for consumers. Even housing, the largest component of the inflation index and one of the most stubbornshowed cautious signs of improvement.
On the other hand, gasoline prices increased by 2.8% in April compared to March, seasonally adjusted. Auto insurance rates also continued to rise, although more slowly than the previous month. And prices for services, more generally, have continued to rise at a faster rate than policymakers were likely to consider acceptable.
Still, even though Wednesday’s report contained mixed signals, it at least stopped the bleeding after several months of troubling news.
If the data had once again been hotter than expected, it might have led policymakers to conclude that high rates need even more time than investors currently expect to bring inflation under control. At an event in Amsterdam on TuesdayJerome H. Powell, Chairman of the Fed, reiterated that recent inflation figures have made him more cautious about cutting rates.
“We didn’t expect it to be a smooth road, but I think the rates have been higher than anyone expected,” he said. “What this told us is that we will have to be patient and let the restrictive policies do their job.”
Any further delay would add to the suffering of low- and moderate-income Americans, who are more and more in difficulty to manage the burden of higher borrowing costs. On Tuesday, the Federal Reserve Bank of New York released data showing that a growing number of borrowers are behind on their credit card bills as rates on those debts skyrocket. And Commerce Department data released Wednesday showed that retail sales remained flat in April, a possible sign of caution from inflation-weary consumers.
Wednesday’s inflation data contained hints of improvement in one of the largest and most problematic inflation categories: housing. Rents rose 5.4 percent in April from a year earlier, the lowest annual increase in almost two years.
But progress on housing costs remains uncomfortably slow. For more than a year, forecasters have predicted that the government’s measure of housing inflation will ease, citing private sector data showing a slowdown in rent growth.
Instead, housing costs in the Consumer Price Index continued to rise faster than before the coronavirus pandemic, a trend that continued in April. And recently, some private sector measurements have also started to show that rents are growing faster again.
“The talk about rents was that they were going to continue to fall as 2024 unfolded,” said Rick Palacios Jr., director of research at John Burns Research and Consulting, a real estate data firm. “We don’t see that. On the contrary, we see it improving.
Housing is by far the largest monthly expense for most families, which means it also plays an outsized role in inflation calculations. If rents continue to rise at the current rate, it will be difficult for inflation to return to normal.
Still, taken as a whole, the April data could restore some confidence in policymakers’ ability to continue to bring down inflation without causing a recession. The Fed seemed poised to do just that last year, defying predictions that high interest rates would inevitably lead to a sharp rise in unemployment.
But as the fight drags on, some economists have begun to question that narrative. Job growth slowed down more than expected in April, and the unemployment rate gradually increased.
“The labor market has held up very well,” Ms. House said. “But the longer we keep interest rates where they are, the more I worry about the job market.”
Jeanna Smialek, Jim Tankersley And Joe Rennison reports contributed.
