Inflation hit an annual rate of 3.3% in April, as expected, the Fed’s preferred gauge shows
Inflation continued to hit consumers’ wallets in April, likely keeping the Federal Reserve on the sidelines until the current wave subsides, new inflation data released Thursday showed.
The consumer price index rose a seasonally adjusted 0.4%, putting the 12-month inflation rate at 3.8%, the Commerce Department reported. Economists polled by Dow Jones were looking for sequential readings of 0.5% and 3.8%.
Excluding food and energy, core prices rose 0.2% in the month and 3.3% in the year, compared with estimates of 0.3% and 3.3%.
While annual prices are in line with forecasts, the soft monthly reading could give hope that last month’s price drop has begun to subside.
The Fed maintains a broad dashboard of indicators, but uses PCE measures as its primary forecasting and policy tool. Officials generally view the core as a better indicator of long-term inflation trends since it excludes the volatile gas and grocery components.
In other economic news Thursday, gross domestic product growth in the first quarter was lower than expected. GDP accelerated at an annual rate of just 1.6% during that period, according to the Commerce Department’s updated reading, which was below the original estimate of 2%.
The department said the preliminary reading was downgraded due to a decline in consumer spending and investment reviews. The consensus was for GDP to hold at the previous estimate of 2%.
Also, initial jobless claims for the week ended May 23 reached a seasonally adjusted 215,000, up 5,000 from the previous period and slightly above the forecast of 213,000, according to the Labor Department. Finally, orders for “durable” durable goods such as aircraft, electronics and computers rose 7.9% in April, ahead of the 3.5% estimate. However, excluding transportation, new orders were up 1.1%.
Despite a soft reading for Q1 GDP, the department reported that consumer spending rose 0.5% in April, meeting the forecast. Income, however, was flat, compared to an average increase of 0.4%. In addition, most of the increase in income appeared to come from a decline in the savings rate, which fell to 2.6%, the lowest since June 2022.
The future of stock markets caught a negative after the data but failed. Treasury yields were slightly negative, especially at the long end.
On the inflation side, commodity prices fell 0.7% in April, again driven by fuel, which rose 5.5%. Service prices rose 0.3%, including a 0.6% acceleration in the housing and services category and a 0.5% increase in food and lodging services.
House prices broadly rose 0.5%, the biggest monthly gain going back at least until January 2025. Services excluding food, energy and housing rose just 0.2% for the month.
Inflation figures may provide some encouragement that existing pressures are easing, although they may not change market expectations.
Traders expect the Fed to remain on hold until at least 2026 and are currently pricing in the possibility that the central bank’s next move will be a rate hike, possibly as early as next year.
Inflation has been close to the bank’s 2% target, but the war in Iran and the impact on costs have distracted the Fed. Policymakers have recently been emphasizing the risk of inflation as signs grow that the labor market is recovering.
The new chairman of the Fed, Kevin Warsh, has indicated that he believes that the level of monitoring of the central bank can be reduced, although he may face opposition from the Federal Open Market Committee.
