Cooling core inflation in the US will offer minimal relief to Fed
Underlying US inflation probably moderated in April for the first time in six months, offering a ray of hope that price pressures will start to ease again after a string of upside surprises.
The core consumer price index, which excludes food and fuel, is seen rising 0.3% from a month earlier after 0.4% advances throughout the first quarter. The Bureau of Labor Statistics will issue its CPI report on Wednesday.
Compared with April 2023, the core CPI is projected to rise 3.6%. While that annual increase would be the smallest in three years, it’s still running too fast to placate Federal Reserve policymakers, who want evidence inflation is slowing consistently as they debate the timing of interest-rate cuts.
The overall CPI probably climbed 0.4% for a third straight month as gasoline prices reached a six-month high. While core goods prices have largely been retreating, underlying services costs remain elevated and explain why inflation proved stubborn in the first quarter.
Part of the difficulty the Fed has had in bringing inflation down toward its 2% goal rests with the resilient American consumer. Retail sales in February and March advanced solidly, although economists’ projections for April suggest households took a breather. Those figures are also due on Wednesin day.
On Tuesday, economists will parse the government’s report on producer prices to assess the impact of categories such as health care and portfolio management that feed into the Fed’s preferred inflation gauge — the personal consumption expenditures price index.
Other reports in the coming week include housing starts and industrial production for April.
Fed chair Jerome Powell is scheduled to speak Tuesday at a foreign bankers event in Amsterdam. Regional Fed presidents Loretta Mester of Cleveland and Raphael Bostic of Atlanta—who both vote on policy this year—are also slated to speak.
Turning north, Canadian data on existing home sales for April will reveal whether the spring market is heating up as buyers anticipate rate cuts.
Elsewhere, numbers on the strength of the Chinese and Japanese economies, wage data in the UK and the latest European Union forecasts will keep investors busy in coming days.
China publishes a slew of data Friday that’s expected to show the second quarter got off to a solid start, with growth in industrial output, retail sales and fixed asset investment accelerating year on year.