Headline CPI in April rose by 0.4%, stronger than expectations of a 0.3% increase based on the Bloomberg survey. The core index also edged higher by 0.2%, in line with expectations. The increase in the headline rate was the largest monthly jump since April 2013.
Over the past year, the headline index increased by 1.1%, with falling energy costs acting as the primary contributor that kept costs in check over much of that period. Core inflation, which excludes the impact of food and energy costs, increased by a more pronounced 2.1% over the preceding twelve months.
With oil prices finding a floor and pushing higher in recent months, the stiff headwind that energy prices provided to inflation has now reversed. In April, energy prices rose 3.4%, with gasoline specifically up 8.1%. The strength of those price increases were the primary catalyst behind the surge in the headline number.
As has been the case in recent months, the bifurcation between the respective price trends for goods and services became more pronounced last month. The prices of goods, particularly durable goods, continue to be negatively impacted by low oil prices and the stronger U.S. Dollar. In contrast, the prices of a broad swathe of services – as well as housing prices – have been increasing at a more rapid rate for some time.
Even as core CPI remains above the Fed’s long-term target of 2% year-over-year, the committee remains focused on growth concerns both domestically and abroad. The slowdown in the U.S. economy that began late last year and extended into the first quarter has not been lost on the Fed. Recently softening data on nonfarm payrolls and jobless claims won’t prompt the Fed to move more aggressively either.
The Fed has hinted in the past that it would be willing to let inflation run moderately above its 2.0% target for some time if necessary to balance its inflation and employment mandates, and it seems unlikely that anything in today’s report will change that stance. As wage growth accelerates (particularly if productivity gains remain limited) and core measures of inflation edge higher, the potential for the Fed to feel greater pressure to move will increase. In the meantime, it appears that the status quo is intact.