The US consumer price index softened to 3.4% year-on-year growth to April, down from March’s yearly rate of 3.5%.
In the month of April, CPI rose by 0.3%. While the food index sat unchanged in April, energy drove up by 1.1%, matching March. Year-on-year, the energy index has increased 2.6% while food rose 2.2%. The results follow a surprise to the upside for markets last month.
Richard Flynn, managing director at Charles Schwab UK, said: “Although this will offer reassurance to markets after an unwelcome uptick in CPI figures last month, the figures are unlikely to prompt an imminent change in interest rates.
“Patience has been the Fed’s core message lately. Officials have been fairly consistent in stating that current interest rates are sufficiently restrictive to bring inflation under control and that the next move will be a cut. However, it is also clear that they are in no rush to make that move. Whether we see rates reduced in July, September, or December will depend on how inflation changes in the coming months, how the economy performs, and whether any issues arise in the financial system or jobs market. In the meantime, we watch and wait.”
On 2 May, Fed Chair Jerome Powell reiterated his message of holding rates until inflation was moving ‘sustainably’ towards the 2% goal. Currently, rates remain at the ranged of 5.25% to 5.5%.
Seema Shah, chief global strategist of Principal Asset Management, added: “The first downside surprise in inflation since the turn of the year will be a relief to the niggling concerns that inflation was starting to trend upwards again. It will inevitably be well received by the market given that it puts 2024 Fed cuts back on the table.
“However, the weaker than expected retail sales number needs to be watched – cooling consumer spending is good, but if that transitions into a deeper slowdown it could herald some economic problems that markets would not welcome.”
Charles Hepworth, investment director of GAM Investments, commented that the retail sales numbers should not come as a surprise with the levelling of wage growth.
“An economy that is still relatively strong, driven by consumption that has surprised to the upside lately, should set up more restrictive Fed action. This monthly print will be seen as a positive, if not from an economy perspective, then from a markets perspective,” Hepworth said.
“Even if the Fed does not raise rates further but simply holds for even longer, it may be that the ‘sell in May adage’ makes a rare, seasonal comeback, especially if these inflation prints and sales data have worried investors. For now though, sentiment seems to be boosted that inflation hasn’t surprised to the upside and retail sales are on the face of it slowing. The landscape is moderating, and that means lower volatility and easier prognostics – all of which means market direction can continue to the upside.”
Neil Birrell, chief investment officer at Premier Miton Investors, added: “The usual excitement over US inflation ended up being a damp squib, as it came in exactly as expected. However, retail sales were weaker than expected and the core rate is back to levels not seen for quite some time, which might well see optimists calling for rate cuts and markets rallying.”
