Inflation Ticked Downward In April, Breaking Trend of Surprisingly High Reports

Inflation edged down in April, according to a monthly report on prices for consumer goods and services that, for the first time in months, didn’t deliver a nasty surprise.

The Consumer Price Index, a widely watched measure of inflation, rose 3.4% over the last 12 months, down from a  3.5% increase in March, the Bureau of Labor Statistics said Wednesday. On a monthly basis, the index rose 0.3% from March, down from a 0.4% monthly increase the previous month, with most of the inflation coming from increasing shelter and gasoline prices. 

The yearly measure was in line with forecasts, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal, and the monthly measure was below the 0.4% expected increase. It was the first report in four months that didn’t show inflation running hotter than expected—a fact that breathed some life into hopes that inflation is on a path back to the Federal Reserve’s goal of a 2% annual rate.

U.S. stocks rose and Treasury yields fell following the inflation data, amid investor optimism that benign economic data could prompt the Fed to consider cutting its benchmark interest rate.

Some Relief in the Details

Another reason for optimism: “core” inflation, which excludes volatile food and energy prices, and is watched by experts as a sign of overall inflation trends, fell to a 3.6% annual increase from 3.8% in March, reaching its lowest since April 2021.

“Today’s numbers brought welcome signs of cooling price pressures, with the topline and core annual inflation rates slipping lower since last month,” Kayla Bruun, senior economist at Morning Consult, said in a commentary.

Significantly for household budgets, grocery prices fell 0.2% after staying flat for the previous two months, offering some relief to shoppers who have had to deal with elevated food prices since the pandemic hit. Prices for new and used vehicles also fell, continuing recent downward trends in both categories.

What Does This Mean For The Federal Reserve?

Wednesday’s inflation report is being closely scrutinized because of its implications for financial markets and interest rates for all kinds of loans. Officials at the Federal Reserve, who control the crucial fed funds rate, are looking for evidence of falling inflation before they’ll consider cutting the rate from its current high level. 

The central bank has held the rate at a 23-year high since July after ratcheting it up from near zero in March 2022 in an effort to subdue inflation. The fed funds rate influences interest rates on loans throughout the economy, including mortgages and credit cards, which are at or near their highest in decades. 

Inflation fell rapidly last year but the progress stalled in 2024 as price increases have stayed stubbornly high, putting pressure on household budgets and dimming hopes for Fed rate cuts anytime soon.

Financial markets are currently betting the Fed will begin rate cuts in September, a prospect bolstered by Wednesday’s inflation data. Chances for a September cut rose to 70% in the wake of the report from 65% the day before, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data.

“The moderation in CPI in April is welcomed after a string of elevated readings in Q1 and keeps alive the prospect of the Fed starting to cut rates in September,” Kathy Bostjancic, chief economist at Nationwide, wrote in a commentary.