The latest Consumer Price Index (CPI) showed cooler than expected inflation in April, with the headline reading up 0.3% from March versus the forecasted 0.4% rise. On an annual basis, CPI eased from 3.5% to 3.4%, which was a move lower in the right direction following the uptick in March. The Core measure, which strips out volatile food and energy prices, increased 0.3% while that annual reading declined from 3.8% to 3.6%.
Rising shelter, gas and motor vehicle insurance costs were key reasons for the pricing pressure that was seen last month.
What’s the bottom line? The Fed has been working hard to tame inflation, hiking its benchmark Fed Funds Rate (which is the overnight borrowing rate for banks) eleven times between March 2022 and July 2023. These hikes were designed to slow the economy by making borrowing more expensive, so the demand for goods would be lowered, thereby reducing pricing pressure and inflation.
While inflation was making good progress lower late last year, readings throughout the first quarter of this year were unexpectedly high, causing the Fed to hold the Fed Funds Rate steady as they take a more patient approach to cuts than initially thought. April’s cooler than expected readings were a welcome sign that inflationary pressures may continue to ease as we move further into the year.