Live updates on the CPI report: Core consumer price increases remain high, although inflation drops to 4.9%
As grocery prices continued to moderate and offset rising petrol prices, inflation decreased for a tenth consecutive month in April.
A measure of underlying inflation that takes longer-term trends into account remained high.
According to the consumer price index of the Labour Department, prices rose 4.9% from a year earlier, down from 5% in March and a 40-year high of 9.1% last June. Since April 2021, that is the smallest yearly growth. After increasing by 0.1% in March, prices increased by 0.4% on a monthly basis.
The Wednesday inflation report was mixed for American consumers and drivers. Only in April did petrol prices increase by 3%. The cost of groceries, however, decreased for the second consecutive month. After nine months of reductions, the price of used cars increased by 4.4%. Though more slowly, rental prices increased.
The figures did, however, show some indications of continued cooling in inflation. After four consecutive months of price hikes, hotel costs dropped 3% and airline fares fell 2.6% in April.
Gregory Daco, chief economist at EY-Parthenon, said, “It’s sticky and bumpy, but there’s no doubt inflation is cooling.”
The Federal Reserve (Fed) increased interest rates in May by 0.25 percentage points, but also signalled a halt in its fight against inflation.
Inflation falls to 5% in March, a nearly 2-year low, but core consumer price increases pick up speed.
What distinguishes CPI from its core counterpart?
Core prices, which account for longer-lasting trends by excluding volatile commodities like food and energy, rose 0.4% from March after a 0.3% gain in February. This caused the annual rise to decrease from 5.6% to 5.5%.
According to the analysis, the country’s journey towards returning to normal inflation rates will be uneven. The general price level continued to show a significant rise from the previous month. Even though the cost of goods has been decreasing as COVID-related supply chain constraints ease, some items saw price increases last month. After nine straight reductions, the cost of secondhand cars surged along with the cost of clothing.
Furthermore, while some of these price rises decreased in April, others slowed in May as Americans began travelling and eating out more regularly.
Will the Fed keep increasing rates?
Despite the fact that inflation has only slightly decreased, the Federal Reserve this week made clear that it will likely halt its aggressive push to raise a key interest rate by 5 percent over the past 14 months. According to Fed experts, the failure of Silicon Valley Bank and two other financial institutions will likely result in tighter lending guidelines, a slowdown in the economy, and lower inflation, which will leave the Fed with less work to do.
The CPI report, according to Capital Economics economist Andrew Hunter, maintains the Fed on course to stop raising rates, but it also demonstrates that persistently high levels may prohibit Fed officials from reducing rates to confront a weaker economy for a longer length of time.
How will petrol prices change in the future?
Despite an uptick in April, petrol prices are still 12.2% lower than they were a year ago. Pump costs have again decreased in recent weeks. Regular unleaded petrol averaged $3.53 per gallon nationwide on Tuesday, down from $3.60 a month earlier.
Will the cost of groceries decrease?
The annual increase in food prices slowed to 7.1% from 8.4%, a second consecutive monthly decline of 0.2%. Due to a decline in worldwide demand, the price of commodities like wheat and maize has decreased recently.
After many dramatic price hikes brought on by the avian flu, the price of eggs decreased by 1.5% in April, marking the third consecutive monthly decrease. Despite this, prices are still up 21.4% from the previous year. Fish and shellfish expenses dropped by 0.7%, bread prices dropped by 0.3%, and pork prices dropped by 1.2%.
However, some costs kept rising. Uncooked ground beef prices rose 0.6%, while chicken prices rose 0.5%.
Prices at restaurants rose by 0.4% and are now up 8.6% annually.
Inflation brought on by rent?
Although the increase remained to be mild, rent was once more the main cause of inflation. Rent increased by 0.6%, up from 0.5% in March but behind a run of more significant increases. The rise was 8.8% year and remained constant. Based on new leases, economists predict that rents will decline, but this change has been slow to trickle down to existing leases.
After a rush of wholesale price hikes finally showed up in retail prices, used automobile prices shot up by 4.4%, but they are still down 6.6% annually. Following a pandemic-related run-up that caused costs to increase by nearly a third, prices had started to decline. And the cost of clothing went up 0.3%.
As supply-chain bottlenecks began to disappear, some product prices decreased. Price drops on new cars totaled 0.2%. Appliance prices dropped 1.9%, while prices for furniture and bedding decreased by 0.5%.
Despite Americans’ return to travel and other activities from before COVID, certain services became slightly less expensive in the interim. Hotel prices dropped 3%, while airline charges decreased by 2.6%. Additionally, medical care services fell by 0.1% following a 0.5% decrease the prior month.
who will benefit and who will suffer from inflation
The Federal Reserve’s eleven consecutive rate increases have increased the cost of borrowing, whether you’re taking out a vehicle loan or a credit card to buy an appliance.
A new credit card’s APR increased from just over 16% to approximately 24% in a short period of time. Freddie Mac’s 30-year mortgage rates, meanwhile, have jumped from 3.6% to 6.4% during the past year. According to a Bankrate calculator, this means that if you put down $90,000 and got a $450,000 mortgage, your monthly payment would increase by 31%, or around $615.
Economists warn that the full effects of the Fed’s most recent significant interest rate increase of a quarter percentage point have not yet been felt because the economy can take up to a year to adjust to rate increases.
rate of interest on mortgages
Home prices are still high due to a scarcity of available properties and a still strong job market, but in February and March, prices somewhat decreased compared to the previous year.
Rates could decrease further before the end of the year if consumer prices keep falling, which would persuade the Federal Reserve to hold off on raising interest rates and make the housing market more appealing to both buyers and sellers.
“Mortgage rates are likely to decline lower later in the year as consumer price inflation calms down and changes the Fed’s thinking from tightening to possibly loosening the monetary policy,” says Lawrence Yun, chief economist of the National Association of Realtors.
Since the Federal Reserve started raising interest rates to tame inflation over a year ago, mortgage rates have more than doubled. Taylor Marr, Redfin’s deputy chief economist, argues that the recent rate increase of a quarter point shouldn’t have an influence on mortgage rates because the increase was anticipated.
The number of homes sold dropped from 6.5 million seasonally adjusted annual units in January 2022 to 4.44 million in March 2023.
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Fundamental Consumer Price Index
The Fed started hiking interest rates when?
The core consumer price index tracks changes in consumer prices without taking into account the costs of food and energy, which are frequently the most volatile parts of the larger consumer price index. Analysts anticipate that the core consumer price index for April will show price increases of 0.3% from March and 5.4% from year-over-year.
For the ninth time in a row, the Fed increased its benchmark short-term interest rate by a quarter of a percentage point last week. However, it made a hint that it might hold off on additional increases while it waits to see if its series of rate hikes and the stricter lending requirements put in place as a result of Silicon Valley Bank’s failure will be able to do their part to contain inflation.
Silicon Valley Bank’s collapse in California alarmed investors, customers, and authorities.
Fed inflation data
On May 26, the Federal Reserve will release its favourite inflation indicator, the Personal Consumption Expenditure price index.
On June 13, the following consumer price index report is expected to be made public.
What level of inflation is ideal?
A 2% inflation rate is what the Federal Reserve wants to see. According to the report, the 2% objective “is most consistent with the Federal Reserve’s mandate for maximum employment and price stability.”
S&P 500
After the 8:30 inflation report revealed that inflation grew less than anticipated in April, stock indices were mixed in late morning trade on Wednesday. The S&P 500 increased 0.21%, the Dow Jones Industrial Average declined by less than 1%, and Nasdaq futures increased by 0.65%.
the 10-year treasury
Following the highly anticipated report’s revelation that consumer inflation was 4.9% last month, the lowest level in two years and down from 5% in March, prices for 10-year Treasuries increased by 3.45%, driving yields lower. The fact that it turned out a little better than anticipated allowed investors to increase their bets that the Federal Reserve will halt raising interest rates and give the economy some breathing room. Prices move one way, while yields move the other way.
Increase in price
On an annual basis, the inflation rate in March was 5%. For the seventh consecutive month, price rises halted as petrol station and grocery shop prices fell.
Stagflation: what is it?
Prior to today’s inflation news, Reuters reported that stagflation concerns were growing on Wall Street. Investors anticipated that the CPI report would show if the Federal Reserve was successful in containing inflation without hurting growth.
Stagflation occurs when inflation is high and economic growth is weak. The phrase lacks a clear meaning or set threshold, but features significant unemployment and an economy that is suffering while prices rise.
A rise in the price of raw resources, which leads to inflation and reduces people’s purchasing power, is one reason that might contribute to stagflation.
The eventuality has loomed big in investors’ minds, according to Reuters, even if it is far from certain. Last year’s inflation increase pushed the Fed to begin an aggressive campaign to raise interest rates, which many have predicted will lead to a recession. Some people also think that the recent failure of a few regional banks would hinder lending and stall growth, causing the Fed to lower rates before inflation is under control.
In the past, stagflation has the following effects:
What distinguishes the consumer price index’s overall component from its core component?
The Consumer Price Index tracks the average price changes over time for a variety of products and services, although the core consumer price excludes the notably volatile costs of food and energy.
Mean of CPI
The Consumer Price Index (CPI) provides a snapshot of the average price changes over time for a wide range of goods and services.
Interest rates and the Fed: The Federal Reserve increased its benchmark interest rate but may take a break.
Borrowing is more difficult because of banks’ stricter standards following Silicon Valley Bank’s bankruptcy.
