Inflation Eases as Core Index Hits Lowest Level Since 2021

U.S. inflation eased slightly in April, with a key measure of price pressures slowing to its lowest level since spring 2021.

The consumer-price index, a gauge for goods and service costs across the U.S. economy, rose 3.4% in April from a year ago, the Labor Department said Wednesday. So-called core prices that exclude volatile food and energy items climbed 3.6% annually, the lowest increase since April 2021. Both figures were in line with economists’ expectations.

Investors saw positive signs in the report that the Federal Reserve’s inflation fight is gradually slowing down the U.S. economy. The yields on 10-year Treasurys, which fall as prices rise, ticked lower. Stocks advanced, continuing their march higher in May.

On its own, Wednesday’s reading won’t be enough to change Fed officials’ calculus for if and when to begin cutting rates, which affect borrowing costs across the economy. But analysts say there is little in the report to reignite fears of rate hikes, allowing central bankers to stay on hold more comfortably at their meeting next month.

Because it will likely take another two reports to shore up officials’ confidence that inflation can return to the lower levels that prevailed before the pandemic, the Fed might not be ready to cut interest rates before September.

Price pressures remain for millions of Americans. Gasoline prices pushed up overall inflation, while consumers continued paying more for housing in April. But year-over-year rent increases slowed from a month earlier, a key sign for economists that a big driver of inflation in recent years is slowly easing.

Costs of groceries and vehicles also edged lower in April from the previous month, while price increases for medical care slowed.

Economists eagerly awaited Wednesday’s report after three previous Labor Department readings suggested price pressures have persisted across much of the U.S. economy this year.

That string of hot data upended projections from Washington to Wall Street that the Fed would quickly slash interest rates in the coming months. The fear is that keeping monetary policy tighter to reach the central bank’s 2% inflation goal could weaken job growth and risk a recession.

“We did not expect this to be a smooth road,” Fed Chair Jerome Powell said at a moderated discussion in Amsterdam on Tuesday. He added that the central bank will need to “be patient and let restrictive policy do its work.”

In April, dimming hopes for summer rate cuts battered the Treasury market, where yields largely track short-term rate expectations. Major stock indexes notched their worst monthly performances of the year. The pessimism more recently appears to have rippled into the real world.

U.S. consumer sentiment veered sharply lower in May, according to preliminary results of a University of Michigan survey released last week. Americans’ outlook darkened in part due to expectations that both inflation and interest rates will stay elevated, pressuring households’ day-to-day budgets and keeping mortgage rates high.

Those inflation blues have become a stubborn political problem for President Biden despite the American economy powering ahead of many rich counterparts.

Wage growth continues. Companies are still pumping out profits. And more investors are once again betting on a so-called soft landing, helping stocks this month resume their ascent toward records.

Besides, there are signs that the rocky start to the year may prove to be a blip in inflation’s longer-term downshift from 40-year highs. Americans’ prices at the gasoline pump, which jumped earlier this year, have retreated in recent weeks. Some economists believe additional relief is on the way from a long-awaited slowdown in rent increases.

A Tuesday report on producer prices in April had mixed implications. Although overall costs kept rising last month, the agency revised lower its March reading. Analysts also say cheaper airfare and hospital prices will help weigh down the Fed’s preferred inflation metric, which includes both supplier and consumer costs.