United States: Inflation regains lost traction in April
May 12, 2017
Consumer prices in the U.S., adjusted for seasonal factors, rose 0.2% from the previous month in April, a notable contrast to March’s 0.3% drop and in line with the increase markets had expected. Although by no means a strong reading, April’s headline figure, coupled with a tightening labor market, suggests that the Federal Reserve has enough room to increase borrowing costs at its 13-14 June monetary policy meeting. Increases in prices were observed for gas, food and housing, which more than offset softness in prices of healthcare and communication.
Inflation eased from 2.4% in March to 2.2% in April, the lowest reading in four months. The deceleration, however, did not prevent annual average inflation from inching up to 1.7% in April from March’s 1.6%. This marked the fastest pace of inflation seen since March 2013.
Core consumer prices, which exclude food and energy prices, swung from a 0.1% decrease in March to a 0.1% rise in April. Despite the improvement, the monthly increase was a disappointment and it would have rounded down to zero had it not been for a one-off tobacco tax increase. Core inflation eased from 2.0% in March to 1.9% in April, the lowest reading since August 2015.
Although the Federal Reserve targets an alternative measure of inflation called the personal consumption expenditures price index (PCEPI), it also follows the core inflation measure closely to judge whether inflationary pressures are increasing in the economy.
Author: David Ampudia, Economist