By Paul Gomme and Peter Rupert
The consumer price index (CPI) rose 3.82% over the month on an annualized basis. While the increase was less than the previous month’s 4.65%, there is still some work to do according to the most recent FOMC announcement:
The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.
May 1 FOMC statement
According to our trend measure the CPI fell only slightly, from 4.11% in March to 4.02% in April. The core measure saw a steeper decline, from 4.39% in March to 3.56% in April. Our trend measure of core inflation fell to 3.97% in April compared to 4.17% in March.
All of these measures attempt to remove the highly volatile price movements. Indeed, there is another measure, dubbed Supercore, that contains only services with shelter prices removed. Our trend measure was 2% a year ago but has now climbed to 6.12%
As we have discussed before, the value of looking at CPI inflation is that it gives a hint as to what to expect from the PCE (personal consumption expenditure) inflation that will be released in a couple of weeks. And recall that core PCE inflation is what the FOMC members seem to have their sights on. The good news is that our trend and year-over-year measures of CPI inflation fell by roughly 0.1 percentage points while core CPI inflation fell by around 0.2 percentage points. It would be reasonable to conjecture similar declines in PCE and core PCE inflation. Since our trend measures of these inflation series were 3.5% in March, we’re looking at 3.3 to 3.4% inflation. While inflation is moving in the “right” direction (at least for this one month), inflation is still running well above the Fed’s stated 2% target for core PCE inflation. While today’s news did not rule out a rate cut by the end of the year, it also did little to change anyone’s mind either.
