Breaking: US CPI inflation softens to 3.4% in April as expected

Inflation in the US, as measured by the change in the Consumer Price Index (CPI), declined to 3.4% on a yearly basis in April from 3.5% in March, the US Bureau of Labor Statistics (BLS) reported on Wednesday. This reading came in line with the market expectation.

The annual core CPI, which excludes volatile food and energy prices, retreated to 3.6% from 3.8% in the same period, matching analysts' estimate. On a monthly basis, the CPI and the core CPI both rose 0.3%.

Follow our live coverage of the US inflation data and the market reaction.

"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 BLS said in its press release. "The energy index rose 1.1%. The food index was unchanged in April. The food at home index declined 0.2%, while the food away from home index rose 0.3% over the month."

Market reaction to US inflation data

The US Dollar came under renewed selling pressure with the immediate reaction. At the time of press, the US Dollar Index was down 0.5% on the day at 104.50.

US Dollar PRICE Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Japanese Yen.

USD   -0.35% -0.41% -0.84% -0.29% -0.60% -0.81% -0.41%
EUR 0.35%   -0.06% -0.40% 0.03% -0.29% -0.45% -0.07%
GBP 0.41% 0.06%   -0.35% 0.11% -0.20% -0.40% 0.00%
JPY 0.84% 0.40% 0.35%   0.50% 0.20% -0.03% 0.40%
CAD 0.29% -0.03% -0.11% -0.50%   -0.32% -0.51% -0.12%
AUD 0.60% 0.29% 0.20% -0.20% 0.32%   -0.21% 0.22%
NZD 0.81% 0.45% 0.40% 0.03% 0.51% 0.21%   0.41%
CHF 0.41% 0.07% -0.00% -0.40% 0.12% -0.22% -0.41%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

Economic Indicator

Consumer Price Index (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

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Next release: Wed Jun 12, 2024 12:30

Frequency: Monthly

Consensus: -

Previous: 3.4%

Source: US Bureau of Labor Statistics

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

This section below was published at 03:00 GMT as a preview of the US inflation report for April.

  • The US Consumer Price Index is set to rise 3.4% YoY in April, following the 3.5% increase in March.
  • Annual core CPI inflation is expected to edge lower to 3.6% in April.
  • The inflation report could influence the timing of the Fed’s policy pivot.

The high-impact US Consumer Price Index (CPI) inflation data for April will be published by the Bureau of Labor Statistics (BLS) on Wednesday at 12:30 GMT. Inflation data could alter the market’s pricing about the timing of the Federal Reserve (Fed) policy pivot, while uncertainty regarding the rate outlook grows amid policymakers’ hawkish tone and disappointing macroeconomic data releases. Hence, a surprise in CPI data could ramp up the US Dollar’s (USD) volatility.

What to expect in the next CPI report?

Inflation in the United States (US) is forecast to rise at an annual pace of 3.4% in April, at a slightly softer pace than the 3.5% increase recorded in March. The core CPI inflation rate, which excludes volatile food and energy prices, is forecast to edge lower to 3.6% from 3.8% in the same period.

The monthly CPI and the core CPI are seen increasing 0.4% and 0.3%, respectively, in April.

Several Fed policymakers have recently voiced their concerns over the inflation outlook. Richmond Fed President Thomas Barkin argued that a patient approach to policy would eventually reduce inflation toward the 2% target, while Minneapolis Fed President Neel Kashkari noted that the lack of progress in inflation was raising questions about how restrictive the policy is. Moreover, Fed Board of Governors member Michelle Bowman said that she doesn’t rate cuts as warranted this year, adding that she would like to see a number of better inflation data.

Previewing the April inflation report, “we expect next week's CPI report to show that core inflation slowed to a "soft" 0.3% m/m pace after posting a third consecutive strong gain at 0.4% in March,” said TD Securities analysts. “The headline likely rose by a softer 0.3% m/m despite another notable gain in energy prices. Note that our unrounded core CPI forecast at 0.27% m/m suggests larger risks for a dovish surprise to a rounded 0.2% increase.”

How could the US Consumer Price Index report affect EUR/USD?

Following the 0.3% increase recorded in January, the CPI and the core CPI rose 0.4% both in February and March, reviving concerns over a slowdown in the disinflationary progress and causing market participants to refrain from forecasting a rate cut until September.

Meanwhile, the BLS reported an increase of 175,000 in Nonfarm Payrolls in April. This marked the smallest growth in payrolls since October and pointed to loosening conditions in the labor market. Other data from the US showed that the business activity in the manufacturing and service sectors contracted in April, with the ISM Manufacturing and Services Purchasing Managers Index (PMI) both coming in below 50. Additionally, the US Department of Labor announced that there were 231,000 first-time applications for unemployment benefits in the week ending May 4, the highest print since early November. 

Despite the strong inflation figures seen in the last couple of months, disappointing data releases keep the optimism about a policy pivot in September alive. According to the CME FedWatch Tool, investors are currently pricing in a 35% probability of a no change in the Fed interest rate in September. Hence, the market positioning suggests that the US Dollar faces a two-way risk heading into the inflation data release.

In case the monthly core CPI rises 0.4% or more, it could revive expectations for a policy hold in September. In this scenario, US Treasury bond yields are likely to gain traction and allow the USD to gather strength against its major rivals. On the other hand, a reading of 0.2% or lower could have the opposite impact on the currency’s valuation.

Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD and explains: “The Relative Strength Index (RSI) indicator on the daily chart stays above 50 but EUR/USD needs to flip 1.0800-1.0820 area, where the 200-day and the 100-day Simple Moving Averages (SMA) are located, into support to extend its uptrend. Above this area, 1.0900 (static level) could be seen as interim resistance before 1.0980 (March 8 high).”

“If EUR/USD fails to clear 1.0800-1.0820 area, buyers could get discouraged. In this case, supports could be seen at 1.0720 (20-day SMA) and 1.0600 (April 16 low, static level).”

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.


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