April sees US inflation rise slightly below expectations, signaling positively for the Federal Reserve

The most recent US consumer price data suggests that April’s inflation uptick fell below expectations, indicating a continued downward trajectory into the second quarter. This news has strengthened market anticipation for a potential Federal Reserve interest rate cut in September.

In April, the Consumer Price Index (CPI) rose by 0.3%, slightly under the consensus forecast of 0.4%, following similar increases in March and February. Annualized CPI hit 3.4%, in line with predictions, after reaching 3.5% in March. Core CPI, excluding volatile food and energy, also saw a 0.3% month-on-month rise in April, compared to 0.4% in March. Annualized core CPI experienced a minor drop to 3.6% from March’s 3.8%, marking the smallest year-on-year gain since April 2021.

Though the annual inflation rate has dipped from its June 2022 peak of 9.1%, recent progress has slowed. Inflation surged in Q1 due to robust domestic demand, following a period of moderation in the previous year. However, April’s deceleration offers some relief, especially after a recent spike in producer prices.

Economists attribute inflation to service providers, such as motor vehicle insurance, housing, and healthcare, adjusting to higher costs. They expect inflation pressures to ease further in the current quarter, with prices gradually converging toward the Federal Reserve’s 2% target as the labor market cools.

Financial markets are now eyeing the possibility of the Federal Reserve initiating interest rate cuts starting in September, reflecting the evolving inflation landscape and expectations for monetary policy adjustments.