Consumer price inflation decelerated in April, rising by 0.3% month-on-month (m/m) – a meaningful slowdown from March’s 1.2% m/m gain. On a year-over-year (y/y) basis, inflation was up 8.3% – down 0.2 percentage points (pp) from March.
After having increased by over 30% in the last twelve months, energy prices fell by 2.7% m/m – largely a result of gasoline prices declining by 6.1% m/m. Conversely, food prices rose 0.9% m/m – the seventeenth month of consecutive increases – and are up 9.4% from year-ago levels.
Core (excludes food and energy) inflation rose 0.6% m/m, which was an acceleration from the 0.3% m/m gain in March. On a year-over-year basis, inflation ticked down 0.3 pp, rising by 6.2% y/y.
Shelter costs matched March’s gain, rising 0.5% m/m with the rent index (0.6% m/m), owners’ equivalent rent (0.5% m/m) and lodging away from home (1.7% m/m) all notching gains on the month. Looking across other service categories, price growth remained relatively broad-based, with transportation (3.1% m/m), medical (0.5% m/m), and recreation (0.4% m/m) services all up in April. Airfares continued to rise sharply – up a whopping 18.6% m/m.
After having declined in March, core goods prices were higher by 0.2% m/m. This was mainly a result of new vehicle prices rising by 1.1% m/m. Conversely, used vehicle prices (-0.4% m/m), apparel (-0.8% m/m) and education and communication goods (-2.6% m/m) were all lower on the month.
Key Implications
After having steadily increased over the past year, inflationary pressures are finally showing signs of cresting, as both the headline and core measures decelerated when compared to year-ago levels. Indeed, base effects are playing a favorable role, as price pressures stemming from supply chain disruptions first started to manifest in March and April of last year.
The modest pullback in April energy prices will do little to ease the pain that consumers are currently experiencing at the pump. Relative to year-ago levels, gasoline prices are up over 43%, equating to an increase of more than $1.25 per-gallon. To make matters worse, weekly data released by the Energy Information Administration has shown that gasoline prices have already turned meaningfully higher through the first part of May, with the average price of regular grade gasoline surpassing its mid-March high.
The lift in core goods prices in April was entirely due to new vehicle prices. However, the Bureau of Labor Statistics implemented a change in how they track new vehicle prices last month, replacing its own dealership survey-based data with transaction data reported by J.D. Power. The methodology may be contributing some noise to the underlying reading. If we were to abstract from this, core goods prices would have continued to decline in April.
Even though modest, the deceleration in price pressures will come as a welcome development to policymakers. Still, the FOMC has its work cut out for them over the remainder of the year, as they quickly move to swing the monetary pendulum from accommodative to outright restrictive in an effort to guide inflation back to target without causing a recession.
