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.