Inflation eases to 3.4% in boost for the Federal Reserve

The Consumer Price Index rose 3.4% in April on an annual basis, signaling a slight moderation after hotter-than-expected price hikes at year start. 

That was in line with a forecast for a 3.4% increase from economists polled by financial services company FactSet. It's also slightly cooler than March's 3.5% inflation bump.

Wall Street is closely watching Wednesday's CPI report for signs that the Federal Reserve's battle against inflation is regaining some ground after prices ticked higher in the first three months of 2024. Stubborn inflation has prompted the Federal Reserve to push back expectations for rate cuts in 2024, with Fed Chair Jerome Powell saying the central bank prefers to keep rates high until inflation retreats to about 2% on an annual basis, rather than risk cutting too early and fueling another bout of price spikes. 

"The modest turn in the right direction has markets pricing in some extra policy easing this year from the Fed, but it's still another strong piece of data and we're still waiting on the return of a genuine disinflationary trend," said Kyle Chapman, FX markets analyst at Ballinger Group, in an email. 

"Cuts are still on in the autumn, but I don't expect today's softer signals to materially change the narrative," he added.

Housing and gas prices contributed more than 70% of April's monthly increase, the BLS said. The so-called shelter portion of the CPI jumped 5.5% last month on an annualized basis. Gas prices gained 2.8% compared with March. 

Housing, which represents about one-third of the CPI, could continue to be a thorn in the Fed's side throughout 2024. That's because the so-called shelter portion of the CPI is reflecting the price shock of people who are moving into new apartments after remaining in place for years, Zillow chief economist Skylar Olsen told CBS MoneyWatch. 

Those renters are likely to pay a sharp increase for housing as they move from lower-cost apartments to market-rate rents, she added.

Wages are outpacing inflation

Even though Americans remain gloomy about the economy due in large part to elevated prices, there's one major bright spot: Wages are continuing to outpace inflation. 

Average weekly earnings rose 3.9% in April, ahead of the 3.4% increase in prices, the BLS said on Wednesday. 

"[W]age growth is a key indicator of how well the average worker's wage can improve their standard of living," wrote Elise Gould, senior economist at the left-leaning Economic Policy Institute, in a Wednesday blog post. "As inflation continues to normalize, I'm optimistic more workers will experience real gains in their purchasing power."

On Tuesday, Fed Chair Jerome Powell reiterated that he expects inflation to ultimately reach the central bank's 2% target. But in remarks during a panel discussion in Amsterdam, Powell acknowledged that his confidence in that forecast has weakened after three straight months of elevated price readings. 

The Fed's policymakers have raised their key interest rate to a 23-year high of 5.3% in an effort to quell rising prices. Inflation has fallen sharply from 9.1% in the summer of 2022 but is higher now than in June 2023, when it first touched 3%.

—With reporting by the Associated Press.

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• Inflation

Aimee Picchi

Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.

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