In April, inflation slowed down because prices for groceries and used cars went down, balancing out increases in rent and gasoline.
Even though inflation had risen notably earlier this year, the latest report showed progress in controlling prices, with a key inflation measure reaching its lowest point in three years. However, this might not be enough to convince the Federal Reserve to lower interest rates in the coming months.
Kayla Bruun, a senior economist at research firm Morning Consult, noted that today’s data indicated a welcome decrease in price pressures, but monthly inflation still isn’t as low as desired.
Overall, prices went up by 3.4% compared to a year ago, slightly lower than the 3.5% increase in March, according to the Labor Department’s consumer price index. On a monthly basis, costs went up by 0.3%, lower than the 0.4% increase the previous month but higher than the 0.1% to 0.2% increases seen last fall.
What is the current core inflation rate in the USA?
Core prices, which exclude volatile food and energy items and are closely watched by the Fed, increased by 0.3% after three consecutive 0.4% increases. This brought down annual inflation from 3.8% to 3.6%, the lowest since April 2021.
Is inflation expected to decrease?
After dropping rapidly last year, inflation unexpectedly sped up in the first quarter but is still significantly lower than its peak of 9.1% in June 2022.
As supply chain issues related to the pandemic have been resolved, prices of goods like used cars, furniture, and appliances, which surged during the health crisis, have started to fall. However, prices for services such as rent, car insurance, repairs, and recreation have continued to rise steadily. This is partly because wage growth is slowing down gradually after the labor shortages caused by the pandemic.
By December, Barclays predicts that yearly inflation will slow down to 3.1% and the core inflation measure will decrease to 3.3% – still higher than the Fed’s 2% target.
The impact of high interest rates
High interest rates are having a significant effect as planned projects like apartments, wind farms, and shops are being scrapped.
Are interest rates expected to decrease?
Wednesday’s report keeps alive the possibility of the Fed beginning to cut rates in September, according to Nationwide Chief Economist Kathy Bostjancic.
Fed rate cuts would reduce borrowing costs for mortgages, credit cards, auto loans, and other consumer loans, which would especially benefit low- and middle-income Americans. They would also lower yields on bank savings accounts, which have only recently become more generous after years of low returns.
As recently as late March, the Fed had predicted three rate cuts this year after inflation slowed down considerably in 2023. However, a third consecutive month of high inflation in March 2024 led Fed Chair Jerome Powell and other central bank officials to indicate that rates will likely remain higher for longer as they wait for a more sustainable move towards the Fed’s 2% target.
Powell reiterated this message at a conference in Amsterdam on Tuesday, stating, “We’ll need to be patient and let restrictive policy do its work.”
The futures market now predicts that the Fed will make its first rate cut in September and another in December. Before the recent inflation increase, it had expected an initial cut in June and a total of three cuts in 2024.
What is happening in the stock market today?
Investors welcomed the slight decrease in inflation, which kept hopes alive for at least some rate cuts this year. All three major stock indexes reached new records. The Dow Jones Industrial Average closed up 349 points at 39,908. The S&P 500 index rose by 1.2% to 5,308. And the tech-heavy Nasdaq increased by 1.4% to 16,742.
Why are US gas prices rising again?
Gasoline prices increased by 2.8% in April, marking the third consecutive increase after four straight monthly declines. Demand is rising as the spring driving season begins and refiners switch to more expensive summer blends.
Will rent decrease in the USA in 2024?
Housing and gas costs together accounted for over 70% of the monthly increase in overall prices.
Rent increased by 0.4% in March, continuing a trend of consecutive increases. This lowered the annual increase to 5.4% from 5.7%. Economists expect rent increases to slow down based on new leases, but this change has been gradual in existing leases.
The cost of some other services also continued to rise. Auto insurance rose by 1.8% and is up by 22.6% over the past year. Medical care increased by 0.4%, and personal care services like haircuts and laundry rose by 1.1%.
However, as the summer travel season approaches, airfares fell by 0.8%, and hotel rates edged down by 0.2%. Car repair costs remained the same but are still up by 7.6% from a year ago.
Are food prices increasing or decreasing?
Grocery prices fell by 0.2% after remaining flat for the previous two months, bringing the annual increase down to just 1.1% and providing continued relief from the supply chain disruptions and price increases caused by the pandemic.
Prices received by farmers for items such as vegetables, dairy, and poultry decreased in March, resulting in lower retail prices last month, according to Barclays and the Agriculture Department.
Egg prices fell by 7.3%; bacon by 0.7%; chicken by 0.8%; and bread by 0.2%.
Some other items became slightly more expensive. Breakfast cereal prices rose by 3.1%; rice by 0.4%; and uncooked ground beef by 0.3%.
Will the cost of goods decrease?
Prices of goods continued to decline as pandemic-related supply chain disruptions and surges in demand diminished. Used car prices dropped by 1.4%; furniture by 0.5%; and appliances by 0.9%.