“We need to be patient and let restrictive policy do its job because inflation is higher than we think.” This was warned by Jerome Powell, president of the United States Federal Reserve (Fed), just a few hours before the data came out this Wednesday that prices rose in the United States by 0.3% in April, below forecasts, and the annualized level fell to 3.4%, in another larger contraction than predicted.
Will this change the minds of US central bank governors? This is the question, since the consumer price data gives encouragement to those who expect a review of interest rates soon, for a long time at 5.25-5.50%, the highest level in more than two decades. The Fed’s goal is 2% monthly inflation. “We don’t expect it to be a smooth road,” Powell insisted in his remarks on Tuesday.
The last bets were in September. The new data means a slight drop, but suggests that inflation is regaining its downward trend, which could cause the Fed to reconsider its position. There were those who bet that a rate cut could be imminent. The next two meetings are in June and July.
The consumer price index, a broad measure of the cost of goods and services across the economic spectrum, fell from 0.4% in March and the annualized index then stood at 3.5%, which was an unexpected surprise for analysts by breaking a downward trend. Inflation contracted rapidly in 2023, a circumstance that encouraged hopes that the Fed would begin cuts in early 2024. Then the numbers became more complicated.
On this occasion, as soon as the improvement was known, the index rose by 180 points in the Dow Jones futures pre-marking. In another good sign for investors, 10-year Treasury bonds fell, when they typically rise when inflation worsens and confidence in the Federal Reserve’s progress diminishes.
Excluding the most volatile items such as energy and food, core inflation also fell to 0.3% (from 0.4% previously) month over month and to 3.6% (from 3.8% March) on an annual basis, although both percentages are in line with forecasts.
The new data is comparable to that of the spring of 2021, a record still far from the 9.1% that would be reached in June 2022, when the Federal Reserve accelerated the rate increases that it had previously undertaken.
Analysts indicated that this Wednesday’s inflation report is a small step in the right direction.
The price of gasoline and rents were the elements that drove the increase in prices during the past month. Housing increased by 0.4% to reach a total of 5.5% from one year to the next. This result fits poorly with the Fed’s objective and darkens the hopes of those who already expect cuts.
Meanwhile, the cost of energy rose 1.1% and puts the annualized number at 2.6%. On the other hand, food remained flat, with an increase of 2.2%, and vehicles, new and second-hand, a sector that triggered inflation in the post-pandemic, fell 1.4% and 0.4%, respectively. .
In another statistic, retail sales remained unchanged compared to the estimate that they would grow 0.4% compared to March. This data is adjusted for temporality but not for inflation, which suggests that consumers, the main force behind the economic impulse, did not keep pace with the price increase.
