4 things to know about Wednesday’s inflation report

Inflation continued its steady cooling in April, but its slow pace shows it is still resilient, according to the Bureau of Labor Statistics’ consumer price index report released Wednesday. Here’s what else you need to know.

1. Inflation has slowed for 10 consecutive months

April marked the 10th month in a row of overall declines in inflation.

The consumer price index for all items, it rose 4.9% over the past 12 months through April, down from 5% in March. It’s a small drop, but it makes April the smallest annual increase since April 2021. This includes the peak for overall CPI at 9.1% in June 2022.

Month-on-month growth was slightly up: 0.4% for April, compared to 0.1% in March.

2. Core inflation is now higher than headline inflation

The annual core CPI, which excludes food and energy, fell from 5.6% in March to 5.5% in April. But for the second time in nine months, the core CPI is higher than the headline CPI rate on an annual basis.

Why would core inflation exceed headline inflation? When you remove food and energy, services remain high. The services index is still up 6.8% over the past 12 months, including shelter, transportation and health care.

3. Blame the rise on gas, rentals and used cars

Energy had been showing signs of slowing, falling 3.5% from February to March, but now rose 0.6% in April. The increase was mainly due to gasoline, which rose 3% in April after falling 4.6% in March.

But when you zoom out, over the past 12 months, both have seen declines: energy is down 5.1% and gas, in particular, is down 12.2%. Other energy indicators have also declined since April 2022, such as natural gas (down 2.1%) and fuel oil (down 20.2%). But the electricity index is still high: up 8.4% annually.

The other most volatile price index is food, which was unchanged from March but is still up 7.7% over the past 12 months. Prices for food at home – groceries – fell for the second month in a row, but remain high year-on-year at 7.1%.

When you remove food and energy from the equation, April’s increase was driven primarily by shelter, which rose 0.4 percent from March to April. This is down from the 0.6% increase from February to March, but the big picture is the 12-month increase. On an annual basis, the shelter is growing by 8.1%.

Another major contributor to inflation right now it’s used cars and trucks that were once a persistent contributor to inflation. This index fell by 0.9% from February to March. But this month is a little different: in April, used cars increased by 4.4% compared to March. And the 12-month decline is now 6.6%, much less than the previous month, when it fell 11.2%.

4. Inflation is slowing, but not as fast as the Fed would like

Wednesday’s data should be a welcome sign for the Federal Reserve that inflation is continuing to fall. The central bank has been the main challenger to inflation, raising the federal funds rate ten times since March 2022. The latest increase last week puts the rate in a range of 5% to 5.25% – the highest since 2007.

These increases are intended to reduce inflation to the Fed’s long-term inflation target of 2 percent. Current inflation is 4.2%, according to the Fed’s preferred metric, the personal consumption expenses index. The PCE rate for April will be published on May 26.

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