Updated at 9:01 AM EDT
U.S. inflation pressures eased for the first time this year in April, data indicated Wednesday, following on from a hotter-than-expected producer prices report, suggesting the Federal Reserve’s months-long battle to reduce consumer price pressures is starting to bear fruit.
The headline Consumer Price Index for April was pegged by the Commerce Department at 3.4%, down from the prior month’s tally of 3.5% and matching Wall Street’s consensus forecast.
On a monthly basis, inflation edged 0.3% higher, slower than the 0.4% gain in March and besting Wall Street’s 0.4% forecast.
So-called core inflation, which strips out volatile components like food and energy, slowed to an annual rate of 3.6%, the lowest in more two years and also better than Wall Street’s 3.6% forecast.
The monthly reading of 0.3% matched Wall Street forecasts of 0.3% and was just inside the March reading of 0.4%.
Federal Reserve Chair Powell told an event in Amsterdam yesterday that “my confidence in that is not as high as it was” that inflation is returning to the central bank’s 2% target.
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The Fed is not out of the woods yet, but the softer-than-expected print gives it a tad bit of breathing room to potentially cut rates as early as September. ” said Skyler Weinand, chief investment officer at Dallas-based Regan Capital.
“We’re still a far cry from the Fed’s desired 2% inflation level and the economy remains strong, so we’ll need a few more weak inflation prints to give the Fed the green light on lowering rates,” he added.
Shelter CPI has now moved down on a YoY basis for 13 straight months, from a peak of 8.2% in March 2023 (highest since 1982) to 5.5% today. Given its long lag vs. real-time rent data, a continued move lower is expected which should lead to a continued decline in core inflation. pic.twitter.com/HB8IsZxDLI
— Charlie Bilello (@charliebilello) May 15, 2024
U.S. stock futures powered higher in the wake of the data release, with contracts tied to the S&P 500 suggesting a 25 point opening bell gain and those linked to the Dow suggesting a 165 point advance.
The rate-sensitive Nasdaq, meanwhile, was marked for a 95 point opening bell gain.
Benchmark 10-year Treasury note yields fell 5 basis points following the data release to change hands at 4.361% while 2-year notes were pegged 8 basis points lower at 4.762%.
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The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.55% lower at 104.44, the lowest in nearly two months.
In a separate report, the Commerce Department reported that retail sales for the month of April were flat when compared to March with an overall spending tally of $705.2 billion.
The so-called control group reading, meanwhile, which feeds into the government’s GDP calculations fell 0.3%, compared to the 1.1% gain recorded in March suggesting a real pullback in overall consumer spending.
CME Group’s FedWatch now suggests little chance of a Fed rate move over the next two policy meetings in June and July, but now pegs the chances of a September rate cut at around 73%.
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