In addition, US equity prices have crashed sharply and quickly. They’ve moved in real space from depressed depths into mildly positive ground as new economic indicators continue to pour in. The CPI report in April caught a lot of people flat-footed. It was a disappointing report that proved monthly gains were much weaker than anticipated all around, registering just a 0.2% month-on-month increase. This counterintuitive result has baffled economists and investors alike. Reserve Board, and they are now all hard at work considering its possible implications for the future course of monetary policy and the economic landscape.
In fact, in April, the headline CPI rate for the entire United States was up only 2.3% over last year. That’s a modest drop from the 2.4% that analysts had been expecting. The report sent mixed signals, laying out not only where costs have been increasing, but where prices have fallen. In particular, prices for household furnishings, education, and health all rose sharply last month, showing that inflationary pressures remain entrenched in these sectors.
Mixed Signals in Price Increases
Food prices fell sharply in April. In addition to food, airfares, used cars and trucks, prices were down, indicating a Jekyll-and-Hyde reality for consumers. Shelter costs accounted for almost two-thirds of the total advance in CPI index last month. That’s a sign the housing market is still acutely stressed.
The April CPI report was a surprise to everyone, both because of the direction—downward—of the report and because of the magnitude. Energy prices were a key contributor to inflation in the recent past. A let-up in recent trends will likely contribute to a further cooling of inflation in May. This changing landscape leads to key questions regarding today’s inflationary environment. Will they stop influencing consumer behavior once the newness wears off?
Economic Resilience Amid Trade Tensions
Analysts have noted that the US inflation data does not indicate any weakening in consumer demand despite ongoing global trade tensions. Consumers continue to spend very strongly. In April, though, the food-away-from-home index surged by a robust 0.4% m/m. This growth is being pushed by strong demand for services. As service providers jack up their prices at historically high rates, it risks making inflation dynamics that much worse.
Super core inflation, which excludes both food and energy and shelter, has been running at an annualized 3.6% rate. That jump is mostly fueled by rising shelter costs. Meanwhile, the core rate remained steady at 2.8%, indicating that while certain sectors are experiencing upward pressure, there is stability in other aspects of the economy.
The Impact of Tariffs on Inflation
Tariffs, surprisingly enough, did not come out as a major inflationary contributor for the US throughout the month of April, per the most recent consumer price index report. This unexpected finding has sent some economists dreaming about the implications for trade policy and American economic growth at large. That lack of consistent, upward tariff-related pressure indicates that other forces have a larger hand in driving inflationary trends.
The macroeconomic picture for the United States in April looks good. Now that equity prices have bounced back and inflationary pressures appear to be easing, stakeholders are trying to gauge how much further the positive momentum can carry us. Cautiously optimistic — As analysts and the public see these key indicators develop over the next few months, analysts will remain cautiously optimistic.