US CPI: ‘The figures are worrying’.
16 MAY, 2024
By Tiffany Wilding from PIMCO
Following the latest US CPI data, PIMCO does not rule out the possibility that the Fed will forgo a rate cut in 2024. We share with you the commentary of Tiffany Wilding, Economist at PIMCO, on the latest US CPI data and its implications.
What has happened?
The US core consumer price index (CPI) rose by 0.3% month-on-month in April, in line with our forecasts and an improvement from the previous month. In terms of details, core services excluding shelter inflation slowed to 0.42%, down from 0.65% in March, while transportation services inflation slowed to 0.86%, as auto insurance, which had risen 2.6% m-o-m in March, slowed to a still robust 1.8% inflation rate. House price inflation remained elevated, but decelerated from March. Landlord-equivalent rent inflation remained strong at 0.42% m-o-m, while rental inflation declined more markedly (0.35% m-o-m compared to 0.41% m-o-m previously). This more tenacious owner-equivalent rent inflation corresponds to a higher weighting of single-family rents relative to the CPI rent category, and we continue to believe that the disinflation of owner-equivalent rents will be slower than expected.
What does this mean?
While markets seemed relieved that the closely watched inflation data did not show a larger than expected increase, as was the case in March, we still view the data as worrisome, as the US will need a more substantial deceleration in consumer goods prices before the Fed will consider easing monetary policy. We see the core personal consumption expenditures price index (PCE), the Fed's preferred inflation measure, at 3.2% quarter-on-quarter on a seasonally adjusted annual basis, meaning that core PCE would need to average 0.2% month-on-month for the rest of the year to decelerate to 3%. We expect core PCE in April to be 0.27%.
What next?
The data do not change our expectations that the Fed will delay rate cuts until it sees a more sustained slowdown in inflation, which means that in 2024 there is a chance that Fed policymakers will hold rates.
