Inflation slowed in April, the 10th month of moderation

In April, inflation slowed for the 10th month in a row report closely on Wednesday showed good news for US families grappling with the burden of higher costs and for policymakers in Washington trying to contain rapid price increases.

The Consumer Price Index rose 4.9 percent in April from a year earlier, less than the 5 percent economists had expected in a Bloomberg survey. Inflation has notably fallen after peaking at just above 9 percent last summer, though it has remained much higher than the annual gains of 2 percent that were normal before the pandemic.

Cheaper prices on plane tickets, new cars and groceries, including eggs and fruits and vegetables, helped push inflation lower last month even if gas prices and rents rose rapidly. In a major shift, prices for some services fell — a positive for the Federal Reserve, which has raised interest rates to slow the economy and wrestle inflation down. Central bankers are keeping a close eye on the cost of services, in part because they have proved stubborn.

The report also included welcome news for President Biden. Inflation has been plaguing voters for more than two years now, weighing on the president’s approval ratings. As prices rise less dramatically with each passing month, they may become less of a pressing concern.

Still, economists warned against overestimating progress: While inflation is showing positive signs of cooling, part of the decline since last summer is due to supply chain recovery. With that low-hanging fruit gone, it could be a long and bumpy road to normal inflation.

“Inflation is still sticky; I don’t think the Fed will look at this and cut rates, or breathe a particularly big sigh of relief,” said Priya Misra, head of global rates research at TD Securities. “Not so fast. We cannot conclude that the inflation problem is over.”

Still, stock prices rose in response to the data, as investors—who typically favor lower interest rates—hailed this as good news for the Fed.

After scrapping food and fuel to get a sense of the underlying trend in price increases — what economists call a core measure — consumer prices rose 5.5 percent from a year earlier, a slight slowdown from the 5 .6 percent in the previous reading.

And a closely monitored measure of services prices outside housing costs pulled back even more meaningfully. That was an encouraging sign that a stubborn strand of inflation is finally about to burst, but it was also partly caused by a moderation in travel costs that may not last, said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives.

That delay offered “a bit of good news, but probably also a bit of fake,” she said.

Although inflation has been gradually cooling for months, it has remained too high for policymakers.

Much of the slowdown in price increases is due to supply chain bottlenecks that surfaced during the lows of the pandemic have been resolved, helping to ease shortages of goods. Energy prices have also moderated since then a peak in the summer of 2022 related to the Russian invasion of Ukraine.

But underlying trends that could keep inflation persistently high over time have remained intact, including unusually strong wage growth, which could push companies to demand more.

That’s one reason Fed officials pay so much attention to service prices: They tend to be more responsive to economic strength, and it can be hard to slow down once they pick up.

There are reasons to hope for more measured services inflation in the coming months. Rents are starting to rise more slowly in market-based trackers, which should start showing up in the official inflation data.

But the question is whether the Fed has slowed the economy enough for other services prices — for things like travel, manicures, child care and health care — to follow suit.

Central bankers have hiked interest rates over the past year at the fastest pace since the 1980s to slow lending and depress growth, pushing borrowing costs above 5 percent as of this month.

Those increases have made it more expensive to borrow money to buy a home or expand a business. With growth cooling and companies competing less aggressively for workers, wage growth is already starting to slow. That chain reaction is expected to undercut demand, which could make it more difficult for companies to raise prices without scaring off customers.

But the full effect of the Fed’s measures is still playing out. The fallout could be exacerbated by a string of recent high-profile bank failures, which could make other lenders nervous and push back on lending.

And Congress is approaching a showdown over raising the country’s debt limit, which could also shape the outlook: as markets panic as Democrats and Republicans struggle to reach a deal and investors worry that the US government will not pay its bills, that could spill over to hurt the economy.

Democrats have warned that the crisis could undermine progress in a strong economy with declining inflation, while Republicans argued on Wednesday that rapid inflation is proof they are right to demand spending cuts.

With so many factors that could weaken the economy, Fed officials are now assessing whether to raise borrowing costs further, or whether their actions so far will be enough to return inflation to normal. John C. Williams, the president of the Federal Reserve Bank of New York, told reporters in New York on Tuesday that the Fed’s next decision — whether to raise or pause rates — would depend on incoming data.

“We will adjust the policy going forward based on what we see there,” he said.

Policymakers will receive the consumer price report for May on June 13, the day before their decision, but officials usually give markets a hint of what they might do with the rates ahead of time. Given that, central bankers will probably pay close attention to April’s inflation report.

Fed officials will also receive May jobs data and a reading of the personal consumption expenditure price index — the measure they officially aim for in their 2 percent inflation target, but one that is more delayed — before their next meeting. The Personal Consumption metric builds in part on data from the Consumer Price Report.

For now, the new inflation numbers are unlikely to be enough to convince policymakers that they need to change course and cut interest rates soon, economists say.

“It probably keeps them on track to pause at the next meeting,” Ms Rosner-Warburton said.