US inflation rises less than expected in April – positive signal for Fed

The latest data on US consumer prices indicates that inflation increased less than expected in April, suggesting a continuation of the downward trend at the beginning of the second quarter. This news has bolstered financial market expectations for a potential interest rate cut by the Federal Reserve in September.

The consumer price index (CPI) rose by 0.3% in April, slightly below the consensus forecast of 0.4%, following similar increases in March and February.
Annualized CPI reached 3.4% last month, aligning with forecasts, after climbing to 3.5% in March.
The core CPI, which excludes volatile food and energy components, also rose by 0.3% month-on-month in April, compared to a 0.4% increase in March.
Annualized core CPI saw a slight decrease to 3.6% from 3.8% in March, marking the smallest year-on-year gain since April 2021.

While the annual increase in consumer prices has decreased from its peak of 9.1% in June 2022, progress has slowed recently. Inflation picked up in the first quarter due to strong domestic demand, following a period of moderation last year. However, last month’s slowdown provides some relief, particularly after a recent jump in producer prices in April.

Economists attribute inflation to providers of services such as motor vehicle insurance, housing, and healthcare catching up to higher costs. They anticipate further easing of inflation pressures in the current quarter, with prices gradually moving towards the Federal Reserve’s 2% target as the labor market cools.

Financial markets are now anticipating the possibility of the Federal Reserve beginning to lower borrowing costs starting in September, reflecting the shift in inflation dynamics and expectations for monetary policy adjustments.