The U.S. annual consumer price inflation (CPI) accelerated in April as the oil shock that resulted from the Strait of Hormuz blockade in the Persian Gulf region pushed up energy prices, a Bureau of Labor Statistics (BLS) report published Tuesday showed. The monthly rate, however, slowed from March.
Following the April CPI print, the U.S. stock index futures recouped some of their early losses, the 10-year Treasury note yield slipped and yet remained positive, and the dollar pared its gains.
Mixed Trend in April CPI Numbers
The CPI index for April rose 0.6% month over month (MoM) on a seasonally adjusted basis, slower than March’s 0.9% rate. The increase was in line with the consensus estimate. The year-over-year CPI rate was at 3.8%, accelerating from the 3.3% rate in March, and a touch hotter than the 3.7% rate expected by economists. This marked the highest reading since May 2023.
Core Inflation Ticks Up
Core consumer prices, which strips off food and energy, rose 0.4% MoM versus March’s 0.2% and the consensus of 0.3%. On a YoY basis, the core CPI came in at 2.8%, up from 2.6% in March. Economists had expected the annual core inflation at 2.7%.
How Key CPI Categories Moved
Food price inflation accelerated at a 0.6% monthly pace compared to unchanged prices in March but energy price inflation slowed to 3.8% from 10.9%. Energy commodities, namely gasoline, and fuel oil witnessed a slowdown in pricing pressure but energy services prices, including electricity and utility gas, accelerated.
Shelter costs rose 0.6%, faster than March's 0.3% rate, while new vehicle and used cars & truck prices slowed. Cost of medical care commodities fell 0.4%, a more modest decline than March's 1% drop. Apparel prices increased 0.6%, slower than the 1% for the previous month.
On a YoY basis, food prices climbed 3.2%, energy commodity prices spiked 17.9% and energy services prices rose 5.4%. Shelter costs climbed 3.3%. On the other hand, used-car prices slid 2.7%.
What Economists Say
The miss in the annual inflation rate is a signal that inflation remains sticky, according to Alpha Binwani Capital's Ashwin Binwani. Giving his takeaways, the strategist said a hotter-than-expected April inflation print makes a June rate cut nearly impossible. He also flagged margin compression risk for companies and warned that second-quarter earnings guidance would tell a sharper story.
Real wages are under pressure, and if disposable income is impacted, consumer discretionary sectors would be the worst hit, Binwani said.
Northlight Asset Management's Chief Investment Officer Chris Zaccarelli said, "Given that inflation is heading in the wrong direction and the labor market is holding up, it’s very unlikely that the Fed will be able to lower interest rates any time soon and it’s possible that we may start pricing in rate hikes for next year."
At best, the Fed would remain on hold for a longer period and at worst, the next move from the central bank may be a rate hike, although not until next year.
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