April CPI: No news is good news

Summary

Consumer price inflation rebounded in April but continued to subside on trend. The headline index advanced 0.22% while the core rose 0.24%, both a touch below the average of the Bloomberg survey estimates. The 0.1% rise in core goods prices conveyed only glimmers of tariffs beginning to push prices higher, as a drop in vehicle and apparel prices nearly offset widespread strength among other goods prices. Meantime, services inflation picked up in April (+0.3%) on the back of a rebound in motor vehicle insurance and smaller decline in travel, but slipped to 3.6% on a year-ago basis—the smallest increase since late 2021.

The core CPI has increased 2.8% over the past 12 months and at a 2.1% annualized rate over the past three months. This marks a continuation of a slow but steady trend toward lower inflation in the United States. However, higher tariffs threaten to derail this trend, and our expectation is that prices for goods including vehicles and apparel will rise in the coming months. A continued deceleration in services prices should help offset some impact from higher goods prices, but we expect the net effect to be a rise in the core CPI to 3.6% by year-end. We believe this leaves the FOMC in "wait and see" mode due to upside risk for both inflation and unemployment. We still expect the first rate cut from the FOMC to occur at the September meeting.

April inflation in line with expectations

Inflation continues to ease on trend. The Consumer Price Index rose 0.2% in April, a touch softer than expected but still a rebound from March's unexpected decline. The temperate gain reduced the year-over-year rate by a tenth to 2.3%, which is the slowest pace since early 2021).

A reprieve at the grocery store (-0.4%) underpinned the muted rise in the headline CPI. Egg prices started to come back down to earth, plummeting 12.7% amid improved containment of the avian flu. While grocery store prices fell, the cost of dining out continues to rise—restaurant prices increased 0.4% for the third consecutive month. Still-solid hiring in leisure & hospitality has supported steady wage growth in the sector, feeding through to solid price growth.

The moderation in grocery prices was juxtaposed with a bounce back in energy prices. After declining steeply in March, energy prices rose 0.7% in April, driven by an increase in electricity and gas utilities. The strength is unlikely to persist, in our view. Global growth concerns and recent announcements of crude oil production increases should keep energy prices on a deflationary trend this year.

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