April’s Consumer Price Index report indicates that inflation may be easing from the higher levels reported in February and March, but remains higher than the low inflation seen in late 2023. The report gives hope for lower interest rates in 2024, but more data is needed to confirm that inflation is moving towards the Federal Open Market Committee’s 2% annual inflation target.
In April 2024, CPI inflation rose 0.3% and remained at 0.3% with food and energy prices excluded. This is lower than the 0.4% monthly increases seen in February and March, but higher than the 0.1% to 0.2% inflation reported in the latter half of 2023. The FOMC’s annual inflation target of 2% aligns with inflation running at a monthly rate just under 0.2%.
The inflation data for April suggests improvement but falls short of fully meeting the FOMC’s target. Core inflation fell to a 3.6% annual rate, the lowest level since March 2021, while headline inflation remains mixed at 3.4%, above levels seen in 2023. Core CPI inflation appears to be on a consistent declining trend, while headline inflation has moved sideways since last summer.
Shelter costs, a key component of the CPI calculation, rose 0.4% in April, maintaining a 5.5% annual rate increase. Vehicle prices are declining, as are prices for food away from home, while inflation pressure comes mainly from services. Transportation services, particularly car insurance, are experiencing sharp price increases, but medical and household services show signs of cooling prices.
Future inflation releases may be more positive, according to nowcast models from the Cleveland Fed. The upcoming release of the Personal Consumption Expenditures Price Index for April is expected to show a 0.1% to 0.2% increase in the monthly index, which would be favorable to FOMC officials. The next CPI report for May is forecasted to show a 0.1% rise in headline inflation and a 0.3% increase in core inflation.
With the job market performing well, the FOMC is likely to maintain interest rates at its June meeting. However, fixed income markets anticipate up to two interest rate cuts in 2024. The April CPI report provides encouraging signs for potential future rate cuts, as inflation appears to be relatively contained. The FOMC will continue to monitor inflation data to determine the appropriate course of action regarding interest rates.
