Equity market rises after CPI inflation rate moved lower in April

The inflation rate went down a click in April, ending two straight months of inflation gains. The April Consumer Price Index (CPI) reported the 12-month inflation rate at 3.4% for April, down slightly from 3.5% in March. However, the inflation rate is still higher than it was in February, when it was 3.2%.

On a seasonally adjusted, month-over-month basis, inflation rose 0.3% in April, slightly less than the 0.4% growth rate in March. Economists had anticipated an increase of 0.4% in April, so it was down slightly from expectations.

As a result, the stock markets opened higher on Wednesday, with all of the major indexes up.

Core inflation rate hits three-year low

Core inflation, which excludes the more volatile food and energy costs, was at 3.6% in April, down from 3.8% in March. Last month’s core inflation rate is the lowest since April 2021.

The indexes for shelter, motor vehicle insurance, medical care, apparel and personal care all increased in April. The indexes for used cars and trucks, household furnishings and operations, and new vehicles all decreased over the month.

Gasoline prices jumped 2.8% in April but are only up 1.2% over the past 12 months. Shelter costs increased 0.4% in April, with the 12-month inflation rate at 5.5%.

“The index for shelter rose in April, as did the index for gasoline. Combined, these two indexes contributed over 70% of the monthly increase in the index for all items,” the CPI press release stated. “The energy index rose 1.1% over the month. The food index was unchanged in April. The food-at-home index declined 0.2 percent, while the food away from home index rose 0.3% over the month.”

Over the last 12 months, food prices have risen 2.2% while energy costs are now 3.1% higher. Electricity costs are up 5.1% while transportation-services costs have gained 11.2%. On the other hand, prices for utility gas service is down 1.9% while used car and truck prices are 6.9% lower from a year ago.

The lower CPI numbers come one day after it was revealed that the Producer Price Index had risen slightly in April.

Equity markets move higher

All of the major stock indexes were up on the decent inflation report on Wednesday. The biggest mover shortly after the markets opened was the Russell 2000, which was up 1.1% on the day. The S&P 500 and Nasdaq Composite were both up 0.6%, while the Dow Jones Industrial Average gained 196 points, or 0.5%, shortly after the opening bell.

While inflation rates remain above where they were in February, the downward movement is a positive sign, as the Federal Reserve is looking for inflation to move consistently lower toward its target rate of 2% annually. If or when it occurs, that drop will be the central bank’s cue to consider lowering interest rates.

The next economic-data release to keep an eye on is the Personal Consumption Expenditures (PCE) Index, which is due for release on May 31. The PCE Index is the Fed’s preferred inflation gauge; in March, it rose 2.8% year over year.