In April, large advanced economies continued to deal with a tricky inflation mixture. It turned out the results differ greatly between the United States, the Euro area and China. The U.S. Consumer Price Index (CPI) surprised analysts by showing a modest increase, while core inflation metrics exhibited some unexpected trends. During the last week in Europe, inflation data stayed steady but marginally higher than forecasts and Chinese inflation was marked by standstill.
The U.S. Bureau of Labor Statistics just reported that CPI increased 0.22% in April. This is a 5.8% increase, which represents month-over-month changes on a seasonally adjusted basis. This was less than the expected increase of 0.3% and a decrease of 0.1% in March. The “core” CPI, which excludes the volatile food and energy prices, increased 0.24% from last month. This jump was more than the expected 0.3% and well above March’s increase of only 0.1%.
Core services inflation in the U.S. just officially crossed a significant threshold. Without shelter and health care it saw negative growth for the second straight month, posting -0.02% mom decrease. This surprising trend sent economists scrambling to explain. They had been expecting an increase in activity with the Easter holiday falling in April this year, as opposed to March of last year.
Further down the pipeline, the PPI showed deflationary pressures at -2.7% yoy (vs -2.5% last month). Even with this broad-based retreat in inflation from producers, core services inflation proved to be stubbornly robust. On a seasonally adjusted basis, the sector experienced a robust monthly price increase of 0.50%. This is the fastest rate of growth we’ve seen in a year.
Euro area inflation held firm at 2.2% y/y in April, as confirmed by Eurostat today (Friday). This figure was a bit better than expected, with forecasts having called for a drop to 2.1%. This relative peace is indicative of the fact that inflationary price pressures in the eurozone are finally abating. That would spell more relief for consumers in the months to come.
At the same time, China’s inflation numbers told a vastly different picture. The country’s core CPI remained flat at -0.1% YoY, indicating no growth in consumer prices. China core CPI increased slightly to 0.5% yoy in April, unchanged from March. This sustained stability is indicative of some resilience though there are still many economic challenges facing the country.
These differences in inflation data between regions illustrate the complexity of our economic conditions as well as consumer confidence. In the U.S., consumers’ short-run inflation expectations have spiked, suggesting a heightened alarm over prospective price hikes. Nevertheless, longer-term market-based expectations are very well anchored, indicating strong confidence among investors that the U.S. economy will have sustained stability.
As central banks evaluate these developments, policymakers will be closely monitoring inflation trends to inform their monetary strategies moving forward. In particular, they will assess how rising consumer expectations and mixed price pressures may influence their approach to interest rates and economic growth.