26 July 2017

US Core Inflation Declines in April

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The CPI declined 0.4% in April, below consensus forecasts of a 0.3% drop, while the core CPI rose 0.1%, below consensus forecasts of a 0.2% rise.  As expected, the overall CPI was pushed lower by an 8.1% drop in gasoline prices, which was partially offset by a 4.4% rise in natural gas prices. Food prices rose 0.2%, in line with our expectations. The 0.1% core rise (0.052% unrounded) was driven by continued steady gains in rents (0.2%), owners’ equivalent rent (0.2%), and new (0.3%) and used (0.6%) vehicles, but held back by declines in prices of apparel (-0.3%), airline fares (-0.7%), and medical care services (-0.1%). On a year over year basis, the CPI rose 1.1% in April, down from 1.5% in March, while the core CPI rose 1.7%, down from 1.9% in March. In addition to slowing activity, the softness in both headline and core inflation provides another reason for the Fed to continue to ease steadily.  Fed should continue to buy assets at an $85bn per month pace throughout this year as long as the CPI is in check.   

 

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