US inflation slows, giving Fed room to pause rate hikes

US inflation showed signs of moderating in April, giving the Federal Reserve room to pause interest-rate increases soon.

The consumer price index rose by a below-forecast 4.9% from a year earlier, the first sub-5% reading in two years, a Bureau of Labor Statistics report showed Wednesday. Excluding food and energy, the so-called core consumer price index also cooled slightly.

But a narrower price measure often cited by Fed officials — tracking services that have boomed as the pandemic faded — registered the smallest monthly increase since mid-2022, as airfares and hotel costs declined.

US stock futures jumped, Treasuries rallied and the dollar weakened after the report.

Metric	Actual	Median Estimate
CPI MoM	+0.4%	+0.4%
Core CPI MoM	+0.4%	+0.4%
CPI YoY	+4.9%	+5%
Core CPI YoY	+5.5%	+5.5%

The report suggests that inflation is cooling as a year’s worth of interest-rate increases and recent credit stress work their way through the economy.

However, overall prices are still rising at a brisk pace and the job market remains robust.

The Fed will need to see more than one month of data to be confident that price pressures are on a sustained downward path, especially after officials hinted last week that they may be done hiking for now.

That said, Wednesday’s report will be one of several that factor into policymakers’ decision next month.

They’ll also receive the CPI for May, as well as reports on the labour market and their preferred inflation measure, the personal consumption expenditures index.

Additionally, officials are still monitoring the ongoing banking stress and to what extent that will further tighten credit conditions.

Several key elements of US inflation showed moderation in April, as prices for airfares, hotel stays and new cars declined.

Shelter costs, which are the biggest services component and makeup about one-third of the overall CPI index, rose 0.4% last month, the smallest in over a year. Measures of rent advanced.

Because of the way, the housing metrics are calculated, there’s a significant lag between real-time price changes and government statistics.

Other metrics suggest these gauges will soon turn over, but economists are split on the exact timing.

Stripping out energy and housing, services prices were up 0.1% in April and 5.1% from a year ago, both the weakest since July, according to Bloomberg calculations.

Policymakers have stressed the importance of looking at such a metric when assessing the nation’s inflation trajectory, though they compute it based on a separate index.

The goods disinflation that was dragging down overall price pressures last year has been losing steam. Excluding food and energy, goods prices were up 0.6% in April, the most since June.

Used-car prices — a key driver of slower price growth in recent months — rebounded to rise the most in nearly two years.

Energy prices climbed 0.6% in the month, driven by higher pump prices. While grocery costs fell for a second month, the price of dining out continued to rise.