US Inflation Moderates In April Giving The Federal Reserve Some Room To Make A Pause

US inflation moderated slightly in April, which may give the Federal Reserve some breathing room to pause its interest rate increases in the near future. The annual CPI increased 4.9% (slightly below expectations) after rising 5.0% on a year-on-year (YoY) basis in March. On MoM basis, CPI rose 0.4% after gaining 0.1% in March.

The report contained some positive news regarding housing rents, which is a sector that the Fed expects will contribute to disinflation for the remainder of the year. The shelter component only increased by 0.4% MoM (v 0.6% prior). On a YoY basis, this component rose 8.1% (v 8.2% prior), suggesting that the top is now behind us.

In the meantime, the core gauge (excluding food and energy) — which is viewed as a more accurate reflection of underlying inflation — rose 5.5% from a year ago (in line with estimates), a slight decrease from 5.6% in the previous month. On a MoM basis, it went up by 0.4%.

Of greater significance, services prices, which exclude energy and housing, rose by 0.1% MoM in April and by 5.1% compared to the previous year, marking the weakest increase since July. Policymakers have stressed the significance of examining this measure while evaluating the country’s inflation trajectory.

Although the report brings good news for the Fed to make a pause at next meeting, policymakers must take into account other reports while deciding next month. It’s worth noting that at their June policy meeting, Fed policymakers will have access to two inflation reports, one of which is the CPI for May. Following the release, US stock futures rose, Treasuries saw gains, and the dollar weakened.