CIO Notebook: A Sigh of Relief as April CPI Decelerates

May 15, 2024

When taken together, this week’s data appears to be incrementally more supportive of rate cuts in 2024.

U.S. CPI data released today for April was, for the first time since the end of 2023, essentially in line with consensus estimates. Headline CPI was up +0.3% month-over-month and up +3.4% year-over-year versus expectations of +0.4% and +3.4%, respectively. Core CPI was up +0.3% on a month-over-month basis and up +3.6% on a year-over-year basis, matching both consensus estimates.

The trend remains consistent in our view in terms of inflation drivers. Shelter and energy costs continue to account for much of the month-over-month increase in headline CPI. Gasoline was up +2.8% on a month-over-month basis while shelter posted another +0.4% month-over-month jump, making it the third month in a row at that print for the sub-index. (Worth noting: gasoline prices are unlikely to post a similar move higher for the May reading, representing a potential source of downside surprise in this month’s print.) At the core level, shelter- and service-related costs such as medical care and insurance remained the primary drivers of the admittedly slower gain in core costs in April, but moderated on a month-over-month basis.

As for areas of progress, new and used car prices continue to decline on a month-over-month basis. The challenge of high auto loan rates may continue to weigh on prices as we move into the summer months. Food prices, when combining food at home and food away from home, were also flat for the month, representing a welcome offset to higher gas prices for consumers across the income spectrum.

Also released today was the advance retail sales report for April. According to the U.S. Census Bureau, retail sales on a month-over-month basis were flat and up +3% year-over-year. This compares with an increase of +0.7% in March. The flat reading was driven in large part by a decline of -1.2% in online sales, marking the fourth straight negative month for the sub-index. Of the major industries measured in the report, only apparel and food and beverage services spend was higher on a month-over-month basis. When considering the “control group,” which comprise the components of the report that eventually feed into GDP, this month marked a decline of -0.3%.

These more muted prints compared favorably with April PPI, released yesterday, which showed an increase of +0.5% on a month-over-month basis, compared to a revised decline of -0.1% in March. Driving the increase were services prices such as portfolio management costs while goods prices were driven higher by gasoline.

In our view, this week’s data appears to be incrementally more supportive of rate cuts in 2024. While one could take the stance that slowing retail sales prints could be combined with rising credit card balances and delinquencies as evidence of an exhausted consumer, we think that a moderation in spending that translates to lessened pressure on prices could represent the calculus the Federal Reserve (Fed) needs to gain the greater confidence it seeks. Expectations for PCE, which is the Fed’s preferred inflation measure, have drifted lower following today’s release.

Market reaction has been positive as U.S. equities opened the session in the green, led by the Russell 2000 Index, which was up over +1% to start the day. Treasury yields broke lower by about -0.07%, and the dollar weakened. In addition, we believe the probability of a rate cut by September increased incrementally based on today’s data. Coming up tomorrow are U.S. housing starts and building permits, but all eyes are now on the release of April’s PCE on May 31 and another round of jobs data on June 7.


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