Inflation pressures eased again in April, as energy prices continued their recent downward trend. The Consumer Price Index fell by 0.4%, while the one-year change in the CPI dropped further to just 1.1%, its lowest point since late 2010.
Taking out the more volatile components of inflation (food and energy), core prices edged fractionally higher, rising 0.1%. Nonetheless, the 12-month change dipped to 1.7%, remaining below 2.0% as it has been since August.
Despite the Fed’s aggressive monetary policy stance, disinflationary forces are still prevailing, relegating concerns about inflation to the list of worries down the road.
While progress continues to be made in the jobs market, the still-elevated unemployment rate, sub-par aggregate demand in the U.S., and soft economic conditions outside the U.S. are still keeping inflation at bay.
Continuing disinflationary pressures and slow, unsteady progress on the employment front leaves the Fed well-positioned to maintain its accommodative policy for now. However, the timing and nature of the central bank’s ultimate exit strategy and what that will mean for capital markets continues to be a significant focus of debate.
As signs of another economic summer soft patch persist in the U.S., and the Eurozone economy records its sixth quarterly decline, downside risks to global growth still persist. Investors continue to shrug off these concerns, as global equities push higher with the implicit support of central banks at their back. How long will that continue? That’s the question on the mind of many investors, and one for which there is no easy answer.
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