US Consumer Prices Rise 4.9% YoY in April, Beating Expectations
Consumer prices in the US rose 4.9% on an annual basis in April, marking the smallest year-over-year increase since May 2021 and coming in better than economists’ expectations for inflation to remain flat at 5%.[0] This is the first time annual inflation has landed below 5% in two years.[1] Furthermore, the CPI reading has cooled considerably since peaking out around 9% in June 2022, although inflation still holds well above the Federal Reserve's 2% annual target.[2] The Fed has been raising interest rates rapidly over the past year in an attempt to cool the economy and slow inflation, but there are concerns that inflation has become persistent and that bringing overall price increases down to the Fed's target will be a long and painful process.
The Fed recently raised its benchmark interest rate for the 10th time in 14 months in what could be its final hike for now, to a level between 5 and 5.25 percent. They have already seen some progress on inflation as the housing market cools, and energy prices have also come down since Russia’s invasion of Ukraine last year triggered a surge in oil and gas costs.[3] However, there is still a long way to go to stabilize the economy.[3]
In April, core inflation, which does not include fluctuating food and energy prices, increased by 0.4% on a monthly basis. This aligns with forecasts and remains unchanged from March. The prices of car insurance, recreation, furniture, and personal care all experienced increases.[4] On the other hand, the cost of groceries fell 0.2% in April, and prices for used cars and trucks rebounded in April, rising 4.4% from March, after falling earlier in the year.[5]
Markets reacted positively to the news, with stock futures jumping immediately after the report, and the Dow Jones industrial average erasing early losses to trade up about 0.2%, while the S&P 500 and tech-heavy Nasdaq climbed 0.3% and 0.4%, respectively, by 8:50 a.m. EDT.[2] However, it was mostly bad news for companies that reported earnings, with Airbnb losing 10.9% and Twilio sinking 12.6% after both companies projected a weak second quarter.[6]
Overall, the data suggests that the Fed's campaign to quell inflation is working, albeit more slowly than they would like.[7] Kathy Bostjancic, Nationwide chief economist, said, “While inflation rates remain persistently elevated, the modest slowing provides the Fed room to pause its rate hikes.[5] We continue to believe that inflation will maintain a gradual improvement throughout this year and the Fed will be on hold during that time.[8]
0. “U.S. CPI rises by slower-than-expected 4.9% in April By Investing.com” Investing.com, 10 May. 2023, https://www.investing.com/news/economic-indicators/us-cpi-rises-by-slowerthanexpected-49-in-april-3078601
1. “Inflation Unexpectedly Ticks Down—But Prices Still Rose 4.9% In April” Forbes, 10 May. 2023, https://www.forbes.com/sites/jonathanponciano/2023/05/10/inflation-unexpectedly-ticks-down-but-prices-still-rose-49-in-april/
2. “Inflation hit 4.9% in April, the lowest it's been in two years” NBC News, 10 May. 2023, https://www.nbcnews.com/business/economy/inflation-is-it-rising-coming-down-april-2023-rcna83359
3. “Inflation eased in April, even as bank crisis slows economy, CPI figures show” The Washington Post, 10 May. 2023, https://www.washingtonpost.com/business/2023/05/10/inflation-april-cpi-fed/
4. “US Consumer Price Index increased 4.9% year over year in April 2023” Business Insider, 10 May. 2023, https://www.businessinsider.com/inflation-price-growth-us-cpi-consumer-price-index-report-april-2023-5
5. “Consumer price index rises 0.4% in April, pushed up by higher auto prices” Axios, 10 May. 2023, https://www.axios.com/2023/05/10/inflation-consumer-price-index-april
6. “Markets Today: Stocks Rally as U.S. CPI Eases” Barchart, 10 May. 2023, https://www.barchart.com/story/news/16759552/markets-today-stocks-rally-as-us-cpi-eases
7. “Inflation rate eases to 4.9% in April, less than expectations” CNBC, 10 May. 2023, https://www.cnbc.com/2023/05/10/cpi-inflation-april-2023.html
8. “Inflation jumped 0.4% in April as prices remain stubbornly high” Fox Business, 10 May. 2023, https://www.foxbusiness.com/economy/cpi-inflation-april-2023
