The Consumer Price Index for All Urban Consumers — CPI-U, the usual benchmark for inflation — rose a month-over-month seasonally adjusted 0.4% in April. On a non-adjusted year-over-year basis, it was 4.9%, the lowest figure since May 2021.
Inflation came in as expected by economists, although that doesn’t necessarily help that much because the rate of reduction has slowed tremendously. Furthermore, the April polling by the Federal Reserve Bank of New York shows consumers to expect inflation to be 4.4% in a year, 2.9% in three years, and 2.6% in five. Which is to say, the Fed may not get its 2% inflation target for a long time.
Shelter again was the biggest driver of inflation, although CRE industry experts have said since the fall of 2022 that drops in apartment unit rents would show up in six months, which April marked. This could put additional attention and pressure on the multifamily industry. Increases in gasoline prices wiped out declines in other areas of energy.
Core inflation — less food and energy — was still up 0.4% in April without those volatile factors. In addition to shelter, other growing costs were used cars and trucks, motor vehicle insurance, recreation, household furnishings and operations, and personal care. “Core inflation remained sticky at 5.5% dropping just 0.1% from last month, a print the Federal reserve watch closely,” Tom Hopkins, portfolio manager at BRI Wealth Management, wrote in a comment.
“Despite the improvement in April the absolute level of inflation still remains well above the Federal Reserve’s 2 percent target, which supports a higher for longer stance from the Fed,” Sam Millette, Fixed Income Strategist for Commonwealth Financial Network, wrote in an emailed statement. “Initial market reaction to the news was supportive, with equity futures and fixed income both rallying following the release.”
In short, this is far from the Fed’s target goal. As to whether the Fed will pause rates or even reduce its benchmark federal funds rate range, thought trying to read the financial tea leaves are split.
“April inflation metrics all but confirm expectations that the Fed will not hike rates next month and as inflation and the economy slows further in the coming months, the Fed could justify an outright cut in rates,” wrote Jeffrey Roach, chief economist for LPL Financial, in an emailed note. “Risk assets will likely become more attractive as investors digest this latest inflation report.”
More in the middle is Nationwide Chief Economist Kathy Bostjancic with written remarks: “We continue to believe that inflation will maintain a gradual improvement throughout this year and the Fed will be on hold during that time—keep the Fed funds target rate at a restrictive 5 – 5.25% range. We do not look for rate cuts until 2024.”
And then, on the opposite side is Sean Snaith, the director of the University of Central Florida’s Institute for Economic Forecasting, who said in an email, ”The case for a pause was pretty well quashed with today’s inflation report, and the likelihood of a rate cut later this year is becoming more of a fantasy.”
At this point, pick what makes you happy, but do scenario planning for the other possibilities.