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Inflation in the US was lower than expected in April and revives expectations of lower Fed rates

Inflation in the US was lower than expected in April and revives expectations of lower Fed rates

The consumer prices in USA rose less than expected in April, suggesting that inflation resumed its downward trend at the beginning of the second quarter, in a boost to financial markets’ expectations of an interest rate cut in September.

The consumer price index rose 0.3% last month, after advancing 0.4% in March and February, the Department of Labor’s Bureau of Labor Statistics (BLS) reported Wednesday.

In the 12 months through April, the CPI rose 3.4% after rising 3.5% in March. Economists polled by Reuters had expected the CPI to gain 0.4% for the month and advance 3.4% year-on-year.

The trajectory of inflation in the US

The annual increase in consumer prices has fallen from a peak of 9.1% in June 2022, although progress has stalled. Inflation accelerated in the first quarter amid strong domestic demand, after moderating for much of last year.

Last month’s slowdown came as a relief, after data on Tuesday showed a rebound in producer prices in April.

Economists say inflation is being driven by service providers such as auto insurance, housing and healthcare, which are playing catch-up in the face of rising costs.

They expect inflation pressures to ease this quarter and prices to gradually move closer to the Federal Reserve’s 2% target as the labor market cools.

That sentiment is shared by Fed Chair Jerome Powell, who said Tuesday: “I expect inflation to move back down… on a monthly basis to levels that were more like the lowest readings.” that we were having last year.

Expectation for Fed rates

Financial markets expect the US central bank to begin lowering borrowing costs in September.

A handful of economists anticipate the Fed will begin its easing cycle in July, while another minority believes the rate cut could come in December, if it comes at all.

Earlier this month, the central bank left its benchmark overnight interest rate unchanged at the current range of 5.25%-5.50%, where it has been since July. Since March 2022, the Federal Reserve has increased its official interest rate by 525 basis points.

Excluding the volatile food and energy components, the CPI rose 0.3% in April after advancing 0.4% in March. In the 12 months to April, the core CPI rose 3.6%. This is the smallest year-on-year increase since April 2021, after the 3.8% increase recorded in March.

Source: Ambito

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