- Rate of annual inflation eased to 3.4 percent in April, down from 3.5 percent
- Consumer Price Index (CPI) gains are being driven by shelter and gasoline costs
- It offers slight relief to economists amidst uncertainty over interest rates
The rate of annual inflation eased slightly to 3.4 percent in April, down from 3.5 percent in March.
Prices continue to be driven up by the cost of gasoline and shelter which, combined, contributed to over 70 percent of gains to the Consumer Price Index (CPI) in the last 12 months.
So-called ‘core prices,’ which exclude volatile food and energy costs, climbed 3.6 percent in the year to April – the lowest increase since the same month in 2021.
The figures, released by the Bureau of Labor Statistics Tuesday morning, offer slight relief after three consecutive CPI releases suggested price pressures are continuing to strain the US economy.
The rate of annual inflation eased slightly to 3.4 percent in April, down from 3.5 percent in March
Fed Chair Jerome Powell said during a discussion in Amsterdam yesterday that officials did not expect bringing down inflation to be a ‘smooth road’
Stocks ticked upwards slightly following the report. The S&P 500 was up 0.48 percent at 9AM Eastern Time (ET) while the Dow Jones Industrial Average had risen 0.32 percent.
Inflation must cool in order for the Federal Reserve to cut interest rates, which are currently at a 23-year-high of between 5.25 and 5.5 percent.
Higher rates are intended to reign in consumer spending by lowering demand thereby causing prices to fall.
The Fed has a clear target of bringing the annual rate of inflation to 2 percent.
At the start of the year, economists had predicted officials would slash rates up to four times.
But consistently hotter-than-expected inflation readings have thrown that plan into doubt.
Prices are being pushed up by rental costs which have in turn risen due to soaring home values. Statisticians do not use house prices to calculate inflation because a home is partially an investment – instead, they rely on rents to reflect the rising value of properties.
Fed Chair Jerome Powell said during a discussion in Amsterdam yesterday: ‘We did not expect this to be a smooth road.’
He added officials need to ‘be patient and let restrictive policy do its work.’
Some 96.9 percent of investors now anticipate the Fed will keep rates unchanged during their next meeting on June 12, according to the CME FedWatch Tool.
More promisingly, around 90 percent still anticipate at least one rate cut by the end of the year.
Brent Kenwell, US investment analyst at eToro, said: ‘The not-too-hot report should boost investor confidence.
The Federal Reserve has voted to hold interest rates steady at their current 23-year-high, officials announced today
Higher rates are intended to reign in consumer spending by lowering demand thereby bringing prices back into check
‘After a series of higher-than-expected inflation reports to start the year, worries of reflation had surfaced as investor expectations for rate cuts continued to fade.’
The Fed’s benchmark funds rate has a knock-on effect on the interest offered to households on their credit cards, mortgages and personal loans.
The average rate on a 30-year fixed-rate mortgage is hovering at 7.09 percent, according to Government-backed lender Freddie Mac.
Meanwhile the average interest on a credit card is 20.66 percent, according to figures from Bankrate.
Credit cards are one of the few borrowing vehicles to offer a variable rate – meaning they change in-line with the Fed’s funds rate.
The cost of auto-lending has also shot up. The average rate on new car loans in March was 7.4 percent, data from Edmunds.com shows.
