Headline CPI modestly below expectations

Headline CPI for April came in at 4.9% y/y, modestly lower than the 5% y/y expected. Core inflation which strips out volatile items such as food and energy printed at 5.5% y/y which was slightly lower than the previous 5.6% y/y. The month-on-month figures for headline and core were 0.4% respectively, which equates to 4.9% annualised. This is still much higher than the Fed's target of 2%.

Progress has been made given the jump at the petrol pump, which was up 3% in April. Other areas which showed higher prices were shelter (the biggest monthly contributor), used cars, car insurance, recreation, and personal care services. However, airline fairs and new cars were both down for the month.

Gas prices have started to fall, which is likely to provide relief in next month's CPI release and shelter climbed at its slowest pace since January 2022. Calculations indicate that, in March, core services, excluding rent and owners' equivalent measure of rent, increased by 0.1%, which is lower than the 0.4% growth recorded in April.

The Fed's efforts are being obstructed by rising used-car prices. In April, the price of used cars surged by 4.4%, despite being lower by 6.6% compared to a year ago. Continued strength in the coming months may impede the decrease in overall goods prices.

Source: www.tradingview.com

The indicator below the core inflation rate y/y shows the core CPI's acceleration/deceleration. Currently, the indicator is showing deceleration in the core inflation rate (green rectangle). However, it bears watching as the indicator is heading back up towards the zero line. To reach the Fed's 2% target, it will need to reverse that trend and stay on the negative side of zero.

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Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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