People shop in the food section of a retail store in Rosemead, California on January 19, 2024.
Frederic J. Brown | Frederic J. Brown AFP | Getty Images
April’s inflation trend may be less dull, but it could still make the Fed uneasy and pause on raising interest rates.
The Consumer Price Index, which measures the cost of goods and services in the market, is expected to rise again this month, although annual inflation is expected to decline slightly, according to Dow Jones consensus forecasts.
Prices for all goods are expected to rise 0.4% this month, the same as in March, but annual growth is expected to edge down to 3.4%, compared with last month’s reading of 3.5%. For important core indicators excluding food and energy, forecasts are 0.3% (down from 0.4% in March) and 3.6% (down from 3.8%) respectively.
In a speech in Amsterdam on Tuesday, Federal Reserve Chairman Jerome Powell expressed hope that inflation will slow this year, but he acknowledged that progress has been slow and further noted that interest rates are unlikely to change anytime soon.
“I expect inflation to fall back on a monthly basis to levels closer to last year’s lower levels,” he told attendees at a banking conference. “I would say after seeing these numbers in the first three months of this year, I’m Confidence in that is not as high as it once was, so we’ll just have to look at the inflation data.”
Wholesale scale brings bad news
In line with higher-than-expected first-quarter numbers, Producer prices rose 0.5% in April, nearly double expectations for a poor start to the second quarter. The index, which represents wholesale prices, rose 2.2% year-on-year to its highest level in a year.
It also underscores the importance of Wednesday’s consumer price index. The Department of Labor’s Bureau of Labor Statistics will provide data at 8:30 a.m. ET.
“This will be the most important data of the month (excluding non-farm payrolls) as inflation continues to exceed expectations,” said Dan North, senior economist at Allianz Trading North America. He added that even if the report is in line The consensus expects that “the Fed will not make enough progress in considering a rate cut before September.”
In fact, financial markets have given up hope of an easing policy by the Federal Reserve, reducing expectations for at least six rate cuts at the beginning of the year to just two now, with the first rate cut unlikely to come before the September meeting.
However, stocks have remained resilient in the face of tightening policy from the Federal Reserve, with the focus turning to solid corporate profits and economic growth.
Focus on housing
Wall Street will scrutinize the CPI report for signs of how long high inflation will persist.Sentiment surveys in recent days show Consumer expectations for inflation have risen, which the Federal Reserve believes is key to curbing price pressures.
A key focus on Wednesday will be housing, as housing-related costs account for about a third of the CPI’s weight. Fed officials have been counting on easing pressure on the rental market as a sign that the strong deflation seen in 2023 will return this year, but that has not happened so far.
“The slower the decline, the longer the path to achieving the Fed’s inflation target,” said Erica Groshen, senior economist at Cornell University’s School of Industrial and Labor Relations and a former senior official at the U.S. Bureau of Labor Statistics and the New York Federal Reserve Bank. “We “I don’t see any major changes in the housing market that would make me think it’s going to be different now. So I don’t really see an explanation for how the housing market reacts differently than it did in the past.”
A key component of housing costs is called owner-equivalent rent, which is a hypothetical measure of how much owners think they can rent out their homes. Increased by 5.9% annually Marchdown from a peak of over 8% in April 2023, but still well above levels consistent with 2% headline inflation.
While Fed officials have been willing to consider housing costs when considering policy, continued stickiness in prices could change that. Central bankers even proposed a separate measure called “super core” that takes into account the cost of services excluding food, energy and housing services, but that may be less relevant now.
“It’s very important that the Fed doesn’t fall behind on this,” Groshen said. “So I think that will make the Fed more cautious about cutting rates. I don’t think it’s going to be enough for them to raise rates, but it might make them more cautious.” cautious.”
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