The monthly rise in prices based on the Consumer Price Index (CPI) came in slightly lower than projected, sending a wave of euphoria across the financial landscape.
The consensus is cooling inflation puts Federal Reserve interest rate cuts back on the table.
The Dow Jones, S&P 500, and the NASDAQ all hit record highs after the data came out on Wednesday. A CNN headline called the CPI report “encouraging” and an analyst from CIBC Private Wealth US told CNN the data “supports a Fed rate cut in the fall.” Yahoo Finance called it a “soft reading on consumer prices.”
It was great news, except it wasn’t.
When you look at the data objectively and in a broader context, it becomes clear the price inflation dragon the Federal Reserve and the U.S. government unleashed during the pandemic is alive and well. He might be resting, but he certainly isn’t dead.
The CPI numbers
On an annual basis, prices rose 3.4 percent in April according to the Bureau of Labor Statistics (BLS) data. That was down just a tick from the 3.5 percent reading last month and met expectations. To put it in a little broader context, the annual CPI print was 3.2 percent in February and 3.1 percent in November.
On a monthly basis, prices rose 0.3 percent. That was below the expectation of a 0.4 percent monthly increase and the primary source of the euphoria. But annualizing that monthly number gives you an annual price inflation rate of 3.6 percent, nowhere near the Fed’s mythical 2 percent target.
Prices have gone up 1.6 percent in the last five months alone, hardly a cause for celebration for those of us who have to pay those prices.
Excluding more volatile food and energy prices (as if anybody can exclude such things from their budgets) core CPI was up 0.3 percent in April, down a tick from the 0.4 percent read in February and March.
On an annual basis, core CPI was 3.6 percent.
Looking at the core CPI data over the last six months provides more context. It came in a 0.2 percent in October, 0.3 percent in November and December, 0.4 percent in January and February, and 0.3 percent in March. In fact, core CPI has been mired in this range since last July.
It’s important to note that none of these numbers are close to the Federal Reserve’s mythical 2 percent price inflation target. You can argue that the April numbers show a hint of cooling, but we’ve seen that before. Everybody was convinced prices were falling and inflation was beat late last summer.
Meanwhile, producer prices rose 0.5 percent in April, with prices for final demand services increasing by 0.6 percent and the index for final demand goods up 0.4 percent.
Producer prices are generally a leading indicator of price inflation because producers pass at least some of their rising costs on to consumers.
When you put all of the data in context and look at it with an objective eye, it's pretty clear that price inflation remains sticky.
And keep in mind, inflation is worse than the government data suggest. The government revised the CPI formula in the 1990s so that it understates the actual rise in prices. Based on the formula used in the 1970s, CPI is closer to double the official numbers. So, if the BLS was using the old formula, we’re looking at CPI closer to 6 percent. And using an honest formula, it would probably be worse than that.
Digging deeper into the numbers, we find that rapidly new and used vehicle prices helped pull overall CPI lower. Used car and truck costs fell by 1.4 percent month on month. New car prices dropped by 0.4 percent.
Meanwhile, clothing costs spiked by 1.2 percent, service prices were up 0.4 percent, energy prices rose with gasoline up 2.7 percent, and shelter costs continued to climb at a 0.4 percent rate.
While prices continue to rise, workers are falling further behind. Average earnings fell 0.2 percent on the month as wages failed to keep up with rising prices.
It’s fair to speculate car prices are falling because people can’t afford to buy a vehicle with other prices still climbing quickly.
Put in context, the CPI report provided very little good news for people struggling with rising prices. The only real positive is that the monthly rise wasn’t quite as bad as expected, and we finally got an overall CPI report that wasn’t worse than projected.
Everybody is desperate for interest rate cuts
The mainstream seems to be reading the April CPI data through the lens of wishful thinking. That’s because everybody is desperate for rate cuts. That includes the central bankers at the Federal Reserve.
Everybody knows that this economy can’t function long-term in a higher interest rate environment. The economy is loaded up with debt and higher interest rates are a giant anchor.
Just look at the rising interest expense on the national debt.
Uncle Sam has shelled out $624.5 billion on interest payments so far in fiscal 2024. That's a 35.7 percent increase over the same period in fiscal 2023. The federal government spent more on interest payments than it did on national defense or Medicare. The only category with higher spending was Social Security.
Debt service costs in the corporate and consumer sectors look equally problematic.
Despite talks of rate cuts, the Federal Reserve hasn't done enough to slay the inflation monster it unleashed over the last decade-plus. It is alive and well because the Fed was never fully committed to killing it.
If the central bank was truly all-in on driving price inflation back to 2 percent, we’d be hearing about additional rate hikes - not pending rate cuts.
Make no mistake; 5.5 percent interest rates are high for an economy loaded up with debt. But they aren’t high in the face of a 6 percent-plus CPI (using the more honest 1970s formula).
Keep in mind that the Federal Reserve injected nearly $5 trillion of money created out of thin air during the pandemic. The U.S. government took a lot of that money in the form of “stimulus” and showered it on Americans who weren’t producing anything. That is the source of these rising prices. A few rate hikes and a modest reduction in the balance sheet weren’t nearly enough to unwind that massive monetary malfeasance – on top of the trillions in inflation they created during the Great Recession.
Nevertheless, mainstream optimism about rate cuts this fall isn’t entirely misplaced. The central bankers at the Fed will likely take any opening they can to move forward with cuts. This CPI report, along with retail sales data showing spending slowing could crack the door open enough to let them wiggle through even though price inflation clearly isn’t dead and buried.
Consider this: if the Fed is willing to consider rate cuts now, with inflation still sticky, what will the central bankers do when something breaks in the economy?
And it’s important to remember what rate cuts mean. It is a pivot back to inflationary policies that got us here in the first place.
In other words, the eulogy for inflation is premature.
Money Metals Exchange and its staff do not act as personal investment advisors for any specific individual. Nor do we advocate the purchase or sale of any regulated security listed on any exchange for any specific individual. Readers and customers should be aware that, although our track record is excellent, investment markets have inherent risks and there can be no guarantee of future profits. Likewise, our past performance does not assure the same future. You are responsible for your investment decisions, and they should be made in consultation with your own advisors. By purchasing through Money Metals, you understand our company not responsible for any losses caused by your investment decisions, nor do we have any claim to any market gains you may enjoy. This Website is provided “as is,” and Money Metals disclaims all warranties (express or implied) and any and all responsibility or liability for the accuracy, legality, reliability, or availability of any content on the Website.
Recommended Content
Editors’ Picks

EUR/USD hits two-week tops near 1.0500 on poor US Retail Sales
The selling pressure continues to hurt the US Dollar and now encourages EUR/USD to advance to new two-week peaks in levels just shy of the 1.0500 barrier in the wake of disappointing results from US Retail Sales.

GBP/USD surpasses 1.2600 on weaker US Dollar
GBP/USD extends its march north and reclaims the 1.2600 hurdle for the first time since December on the back of the increasing downward bias in the Greenback, particularly exacerbated following disheartening US results.

Gold maintains the bid tone near $2,940
The continuation of the offered stance in the Greenback coupled with declining US yields across the board underpin the extra rebound in Gold prices, which trade at shouting distance from their record highs.

Weekly wrap: XRP, Solana and Dogecoin lead altcoin gains on Friday
XRP, Solana (SOL) and Dogecoin (DOGE) gained 5.91%, 2.88% and 3.36% respectively on Friday. While Bitcoin (BTC) hovers around the $97,000 level, the three altcoins pave the way for recovery and rally in altcoins ranking within the top 50 cryptocurrencies by market capitalization on CoinGecko.

Tariffs likely to impart a modest stagflationary hit to the economy this year
The economic policies of the Trump administration are starting to take shape. President Trump has already announced the imposition of tariffs on some of America's trading partners, and we assume there will be more levies, which will be matched by foreign retaliation, in the coming quarters.

The Best Brokers of the Year
SPONSORED Explore top-quality choices worldwide and locally. Compare key features like spreads, leverage, and platforms. Find the right broker for your needs, whether trading CFDs, Forex pairs like EUR/USD, or commodities like Gold.