Inflation report analysis and Fed rate cut discussion

April saw a decrease in inflation as drops in the cost of groceries and used cars countered an increase in rent and gas.

The report showed further progress in the fight to control prices after inflation noticeably increased in the early part of this year, with an underlying inflation measure falling to a three-year low. However, it might not be sufficient to persuade the Federal Reserve to lower interest rates in the upcoming few months.

“Senior economist Kayla Bruun of Morning Consult, a research firm, stated in a note to clients that the numbers released today showed encouraging signs of easing price pressure. However, she went on, monthly inflation is still “not low enough.”

Also Read: Slovakia’s Prime Minister shot and seriously injured in an attempt to commit ‘atrocious murder’

The consumer price index, a measure of the costs of goods and services across the economy, released by the Labor Department shows that overall prices rose 3.4% from a year ago, down from 3.5% in March. Monthly costs increased by 0.3%, which was less than the 0.4% increase in the previous month but higher than the 0.1% to 0.2% readings that were typical last autumn.

How much is the US core inflation rate currently?

Following three consecutive 0.4% increases, core prices—which exclude volatile food and energy items and are subject to closer Fed monitoring—rose by 0.3%. As a result, annual inflation decreased to 3.6% from 3.8%, the lowest level since April 2021.

Is inflation expected to go down?

Inflation unexpectedly increased in the first quarter of 2022 after easing quickly the previous year, but it is still far lower than its 40-year peak of 9.1% in June of that same year.

The cost of items like used cars, furniture, and appliances, whose prices skyrocketed during the health crisis, has decreased as supply chain issues related to the pandemic have been resolved. However, the price of necessities like recreation, auto insurance, and repairs, as well as rent, has been rising over time. This is partially due to the slowdown in wage growth that has occurred after pandemic-related labor shortages.

According to Barclays, annual inflation will drop to 3.1% by December and the core index measure will drop to 3.3%, which is still significantly higher than the Fed’s 2% target.

Are interest rates expected to drop?

Nationwide Chief Economist Kathy Bostjancic wrote in a note to clients that the report released on Wednesday “keeps alive the prospect of the Fed starting to cut rates in September.”

Fed rate reductions would help Americans with low and middle incomes in particular by lowering borrowing costs for credit cards, auto loans, mortgages, and other consumer loans. Additionally, they would lower the yields on bank savings accounts, which have finally increased after years of pitiful returns.

The Fed was predicting three rate cuts this year as late as March, following a sharp halt to price increases in 2023. To control inflation, the Fed increased its benchmark short-term rate from near zero to a 23-year high of 5% to 5.25% between March 2022 and July 2023.

However, Fed Chair Jerome Powell and other central bank officials declared that rates will probably remain higher for longer as they wait for a more sustainable move to the Fed’s 2% target following a third consecutive month of hot inflation in March 2024.

“We’ll need to be patient and let restrictive policy do its work,” Powell reiterated at a conference on Tuesday in Amsterdam.

The Fed’s first rate cut in September and another in December are now anticipated by the futures market. It was betting on a first cut in June and three further decreases in 2024 before the inflation spike.

What is the stock market doing today?

Investors expressed optimism as the slight deceleration in inflation sustained the anticipation for potential rate reductions. During midmorning trading on Wednesday, the Dow Jones Industrial Average climbed253 points to 39,811.29, and the S&P 500 index increased by 0.9863% to 5,298.43.

Why are US gas prices rising again?

Gasoline prices experienced a 2.8% uptick in April, marking the third consecutive rise following a series of four monthly decreases.  The resurgence in demand is attributed to the onset of the spring driving season, which typically sees an increase in travel.  Additionally, the transition by refiners to the costlier summer blends, which are mandated to reduce smog, has contributed to the price escalation.

Will rent go down in 2024 in the USA?

The combined expenses of housing and gasoline contributed significantly to the overall price surge, representing over 70% of the monthly inflation.

In March, rent observed a modest increment of 0.4%, continuing its upward trajectory. This slight increase brought the yearly escalation down slightly to 5.4%, a marginal decrease from the previous 5.7%.  Economists are forecasting a tempering of rent hikes, particularly for new leases, although this moderation is expected to permeate to existing leases only gradually.

Are food prices increasing or decreasing?

Grocery prices saw a marginal decline of 0.2% after remaining stable for the preceding two months, resulting in a modest annual increase of just 1.1%. This trend has provided consumers with ongoing respite from the disruptions in the supply chain and the previous escalations in food prices caused by the pandemic.

According to recent reports, the prices that farmers received for commodities like vegetables, dairy, and poultry experienced a softening in March, which contributed to the observed reduction in retail prices last month.

Will the price of goods decrease?

The trend of declining goods prices persisted as the complications associated with the pandemic’s supply chain issues and the previous surges in demand began to subside. Specifically, the prices for used cars saw a reduction of 1.4%, indicating a stabilization in the market as the initial pandemic-driven demand wanes. Furniture prices also experienced a modest decrease of 0.5%, reflecting a market adjustment to the evolving consumer spending patterns. Meanwhile, appliance prices dropped by 0.9%, aligning with the broader trend of price normalization across various consumer goods sectors.