Announced this morning, the Consumer Price Index (CPI) increased 0.6% in April, as expected. On an annual basis, it grew 3.8%, slightly higher than expected and considerably higher than the previous month’s increase. The core rate, which excludes prices for food and energy, increased 0.4% in April, more than expected, and higher than the previous month. The core rate grew 2.8% on an annual basis, slightly higher than expected and is two-tenths higher than the previous month’s annual measure.
Looking at the individual categories, monthly prices for Gasoline, up 5.6%, and Fuel Oil, up 5.8%, were relatively strong, while monthly prices for Medical Care Commodities, down -0.4%, and New Vehicles, down -0.2%, were relatively weak. Prices for Shelter were up 0.6%, double the previous month’s increase.
Overall, inflation measures remain elevated in the current environment. The headline measure was as expected for the monthly increase, but the annual measure was higher than expected and much higher than the previous month’s increase. The annual measure for the core rate was higher than expected and remained above the Federal Reserve targets. Prices for gasoline and fuel oil were again relatively strong, while prices for medical care and new vehicles were relatively weak. Shelter costs were much higher in the month as the data normalized following the data collection issues from last fall’s government shutdown.
Given these data points and inflation levels remaining above targets, the Federal Reserve may need to wait on easing monetary policy as Kevin Warsh assumes the chair position in the days ahead. Energy prices were again high in April, and the report hints that some of those higher costs are filtering into other areas of the economy such as food, transportation services, and apparel. As the conflict with Iran continues, the length of time that oil prices remain elevated will be a key factor for the economy and markets in the coming weeks.
In all, the 10-year US treasury yield ticks higher following the report and equity futures are lower as we head into the market open.
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