Inflation Slowed in April. It’s Still Sky-High.

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The consumer price index came off a run of 40-year highs last month as energy prices retreated from their own streak of monthly increases. Despite the cool-down, signs of hot inflation abound.

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Overall consumer prices rose 0.3% last month, the Labor Department reported Wednesday, a sharp drop from March’s 1.2% increase. For the year, prices rose at an 8.3% annual pace last month, down from a four-decade high 8.5% pace in March. Economists had expected prices to rise 0.2% in April and 8.1% over the year.

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While a peak in headline inflation would be welcome—though it’s far from certain yet that it has peaked—it’s hard to look past energy and see an end to surging prices. While the energy index fell 2.7% in April after months of gains amid the Ukraine-Russia war, many other categories were up. Core CPI, which excludes the volatile energy and food segments, rose 0.6% in April following a 0.3% increase in March. There were also substantial increases in prices for shelter, food, airfares, and new vehicles; the food index, for instance, rose 0.9% in April as the food at home index rose 1%.

“April’s CPI report came in a little stronger than expected, underlining how difficult it will be to reverse a trend of rising prices that has spread across almost the entire array of goods and services included in the survey,” Marketfield Asset Management CEO Michael Shaoul wrote . “Thus although the possibility of peak CPI being behind us remains on the table, the way back to acceptable levels still looks to be some distance away, both in terms of time and potential monetary tightening.”

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Markets zigzagged in the hours since the CPI report’s release at 8:30 am Eastern time as investors grappled to determine what the reading means for the Federal Reserve’s monetary-policy tightening campaign. While stock futures slid heading into the opening and continued falling shortly after the 9:30 bell, the Dow Jones Industrial Average reversed course and was recently up 0.6%. The yield on benchmark 10-year Treasury notes climbed above the key 3% level.

Many economists and market observers believe the latest inflation numbers will do little to turn the Fed from its steady, predictable path to raise rates and tighten policy. Fed Chairman Jerome Powell recently dismissed talk of 0.75-percentage-point rate hikes and expressed confidence policy makers could rein in inflation in a measured way while guiding the economy to a “soft or softish landing.”

“Given the Fed’s need to re-establish credibility in maintaining price stability, it will likely maintain a rather fast pace of monetary tightening until the data portrays a clear and decisive path of moderation in inflation,” said Jason Pride, chief investment officer of private wealth at Glenmede.

Jefferies economists Aneta Markowska and Thomas Simons concur, and they further question whether the Fed should put a 0.75-percentage-point hike on the table. “This will provide absolutely no solace to the Fed. The only reason [year-over-year] inflation slowed was base effects. There is no sign of a sequential slowdown in underlying price pressures,” they wrote. “Powell said last week that the Fed wasn’t seriously considering a 75bp increase at the next two meetings. After today’s CPI report, it may warrant some consideration.”

Digging deeper into the numbers, prices for many goods and services continue to surge as more Americans resume their prepandemic ways of life. The index for airfares leapt 18.6% in April, for instance, the largest one-month increase since records began in 1963. The index for new cars increased 1.1% in April after a 0.2% rise in March.

Still, some segments declined. The index for used cars and trucks fell 0.4% after a long series of increases. The index for apparel fell 0.8% over the month, the first decline in six months.

While Wednesday’s CPI report didn’t provide the definitive peak in inflation that investors were hoping for, they’ll get another glimpse Thursday when the Labor Department reports on inflation at the wholesale level. Economists expect a moderation in the producer price index, too, with a 0.5% increase in April, down from a 1.4% increase in March.

Write to Brian Hershberg at [email protected]


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