Stubborn US inflation is showing sign of cooling down in a report indicating lower than expected rise in consumer prices in April
U.S. Bureau of Labor Statistics reported on Wednesday that consumer prices increased 0.3% from March, that was slightly below the Dow Jones estimate for 0.4%. Consumer price index is a broad measure of total goods and services purchased by households during a set period of time. It is also the most important metric used by Federal Reserve to measure inflationary percentage.
The highly anticipated report indicated cooling inflationary pressure in United States, that directly correlates with reduced consumer spending. The lower than expected increase in consumer prices at the beginning of the second quarter must rejoice investors as lower inflation would stimulate a higher chance for a September interest rate cut.
Federal Reserve chair, Jerome Powell, has dashed hope of millions earlier this year after he dismissed interest rate cut appeal. But thankfully, now that there is a visible cool-down of inflation in United States, investors would seem hopeful about the central bank engineering some rate cuts. Interest rate cuts would boost equity trade, allowing influx of new capital, thus boosting over financial market.
In-depth analysis of “core CPI” cooling inflation
The core CPI that comes from items excluding food and energy, for their inherent volatile nature, came in as 0.3% monthly and 3.6% on an annual basis. The shelter index increased 0.4% in April and was the largest factor in the monthly increase of 0.3% CPI for all items less food and energy.
Shelter costs that have been the main cause of burden for Federal Reserve officials expecting inflation to come down this year, were up 5.5% from a year ago. The motor vehicle insurance index rose 1.8% in April, following a 2.6% increase in March. The indexes for personal care, recreation, and education also increased in April. The medical care index rose 0.4% in April after rising 0.5% in March.
The index for all items less food and energy rose 3.6% over the past 12 months. The shelter index rose 5.5% over the last year, accounting for over two thirds of the total 12 month increase in all the items less food and energy index. Other indexes with notable increases over the last year include motor vehicle insurance, medical care, personal care, and recreation.
The conclusion that can be drawn is stimulation in rental and medical sector would counterattack sprawling price rise and can cool inflation. Because the report indicated shelter to be the biggest contributor in annual and monthly increase in CPI, so if there is one change that the government should be willing to execute must be in improving housing infrastructure by building more homes and supplying government supported Pharmaceutical drugs.
Food and Energy indexes in cooling inflationary pressure
The food index was unchanged in April after increasing 0.1% in March. The index for food at home decreased 0.2% in April. Three of of the six major grocery stores food group indexes decreased over the month while the remaining three had price advances.
The food at home index rose 1.1% over the last 12 months. The food away from home index rose 0.3% in April, as it did in March. The index for limited service meal rose 0.4%, and the index for full service meal increased 0.3% over the month. The index for food away from home rose 4.1% over the last year. The index for limited service meals rose 4.8% over the past 12 months, and the index for full service meals rose 3.4% over the same period.
Energy index rose 1.1% in April, the same increase as in March. The gasoline index increased 2.8% in April, in contrast the index for natural gas fell 2.9% in April and the index for electricity decreased 0.1% over the month. The energy index increased 2.6% over the past 12 months, the gasoline index increased 1.2%, and the electricity index increased 5.1% over this 12-month span.
The report predominately categorizes data into two CPI categorizes – Core and All-items. The data released by US Bureau of Labor Statistics suggests month-on-month reduction in consumer spending that is a direct sign of cooling inflation.
