COOL! INFLATION OFF
Stox hit records amid new rate-cut hopes
Inflation cooled down in April after a hotter-than-expected start to the year, boosting bets that the Federal Reserve will finally start cutting rates this fall — and leading to a record-breaking rally on Wall Street.
The Consumer Price Index, which tracks goods and service costs, rose 3.4% in April from a year ago — easing from the previous month’s 3.5% spike and in line with economists’ forecasts, according to FactSet.
The inflation rate was still well above the Fed’s 2% target. However, hopes the central bank will start its easing cycle in September were further bolstered by other data Wednesday showing retail sales were unexpectedly flat last month.
The reports suggested that domestic demand was cooling, which will be welcome news for Fed Chairman Jerome Powell as the policymakers try to engineer a “soft landing” for the economy.
Heat turned down
“It’s a relief we didn’t have a fourth hot CPI report,” said Carol Schleif, chief investment officer at the BMO family office in Minneapolis.
“Clearly markets liked that the inflation numbers looked softer. Retail sales came in softer. It’s pretty clear evidence that the economy came off the boil and is operating at a more sustainable pace.”
Financial markets are now forecasting a roughly 73% probability of a rate cut in September, up from 69% before the CPI stats were released by the Labor Department’s Bureau of Labor Statistics. A few economists predicted lowered borrowing costs in July.
Investors sent all three major indexes through record barriers. The Dow Jones Industrial Average soared 350 points to close at 39,908, eclipsing its previous mark of 39,807. The S&P 500 topped 5,300 for the first time, jumping 1.2% to 5,309. The tech-heavy Nasdaq Composite rose 1.4%, to 16,742.39, setting an all-time high.
The annual increase in consumer prices has dropped from a peak of 9.1% in June 2022, though progress had stalled. Inflation accelerated in the first quarter amid strong domestic demand after moderating for much of last year.
The latest CPI data showed socalled core inflation, which strips out volatile food and energy prices, came in at 3.6% on an annual basis as expected — its lowest reading since early last year.
On a month-to-month basis, inflation rose 0.3% last month — slightly lower than the 0.4% forecast after advancing 0.4% in March and February.
The cost of shelter, which includes rents, increased 0.4% for the third straight month. Gasoline prices shot up 2.8%.
These two categories contributed more than 70% of the increase in the CPI. Food prices were unchanged. Prices at the supermarket fell 0.2%, with eggs dropping 7.3%. Meat, fish, fruits and vegetables as well as nonalcoholic beverages were also cheaper.
But cereals and bakery products cost more, while prices for dairy products rose marginally.
Last month’s overall slowdown was a relief after data Tuesday showed a jump in producer prices in April.
On Tuesday, Powell reiterated that he expects inflation to ultimately reach the central bank’s 2% target, but admitted his confidence in that forecast has weakened after three straight months of elevated price readings.