U.S. consumer price inflation accelerates in April, Fed likely to hike rates in June

The U.S. consumer price inflation accelerated on par with market expectations in April. On a sequential basis, the consumer price index rose 0.2 percent, while it came in at 2.2 percent on a year-on-year basis. The year-on-year print was a continued slowdown from its February peak of 2.8 percent.

Necessities mainly drove the prices higher in April. On a sequential basis, prices for food, energy, tobacco and shelter rose in April. On the other hand, several categories witnessed declining prices, such as education/communication, apparel, medical care and new and used vehicles.

The tug of war between several categories led to a modest rise in core inflation of 0.1 percent sequentially in April, following an unexpected decline of 0.1 percent in core prices in the prior month. On a year-on-year basis, core inflation came in at 1.9 percent, the slowest rate since October 2015.

The recent weakening in core inflation is due to constant deflation in core goods prices, which dropped 0.5 percent year-on-year, and now a slowing in core services prices. Core services inflation had run robustly by 3.2 percent last fall; however, it has now slowed to 2.7 percent.

The inflation data for April gave some assurance that there are still inflationary forces in the economy. But the weakening in recent months in core inflation might be of some worry for the U.S. Fed as it considers its next rate move, noted TD Economics in a research report. In all, the Fed is expected to keep the faith of price pressures building down the line showing a strengthening economy.

“Price pressures in other measures, like the producer price index, showed heartier gains in April, and suggest higher inflation is on its way. So long as the economic data continues to cooperate over the next month, the Fed looks set to raise rates another quarter point in June”, added TD Economics.