April inflation up 4.9% YoY.

The Consumer Price Index Rises 0.4% in April

The latest report from the Labor Department shows that the consumer price index, which measures the cost of goods and services, rose 0.4% in April. This increase was in line with Wall Street expectations and was driven by rising shelter, used vehicle, and gas prices. However, there is some hope that the trend is lower as the inflation rate was 4.9% on an annual basis, slightly less than the estimate.

Good News for Financial Markets

Despite persistent inflation, financial markets reacted positively to the news, with futures turning positive as Treasury yields were lower. Quincy Krosby, chief global strategist at LPL Financial, said, “Today’s reports suggest that the Fed’s campaign to quell inflation is working, albeit more slowly than they would like. But for financial markets…today’s inflation print is a net positive.”

Shelter Costs Continue to Rise

Shelter costs, which make up about one-third of the CPI weighting, increased another 0.4% on the month and are now up 8.1% from a year ago. The monthly gain represented a step down from previous months’ increases but was still indicative that a key inflation driver is rising. With housing costs projected to decline, the Fed is focusing on “super core” inflation, which excludes food, energy, and shelter. That measure rose 0.4% for April and was up 3.7% from a year ago.

Workers’ Earnings Rise Slightly

For workers, real average hourly earnings, adjusted for inflation, rose 0.1% for the month but were still down 0.5% from a year ago, according to a separate report from the BLS.

What’s Next for the Fed?

The CPI reading comes just days after the BLS reported that nonfarm payrolls increased by 253,000 in April, above expectations and indicative that the labor market is still hot despite Fed efforts to cool demand. In approving its latest rate hike last week, the Fed removed an indication that future increases are warranted and instead shifted to language saying that decisions will be based on incoming data.

Upcoming Reports

The Labor Department will release the April producer price index on Thursday, which is a gauge of wholesale prices on final demand goods and services. That report is expected to show a 0.3% headline increase and a 0.2% core gain.