What To Expect From April’s CPI Report

The next Consumer Price Index release for April 2024 is expected to continue this year’s pattern of relatively higher inflation. If that happens, the CPI report is likely to provide support for the Federal Reserve holding back on interest rate cuts until July or later.

CPI Release Timing

On May 15, the U.S. Bureau of Labor Statistics will release CPI data for the month of April at 8:30 a.m. ET. This will be the first of two CPI releases before the next Federal Open Market Committee meeting on June 12. However, that subsequent May CPI release will come on the morning of the FOMC’s June interest rate decision day. Due to a lack of progress on disinflation so far in 2024, the FOMC isn’t expected to cut rates until July at the earliest, and quite possibly later.

Inflation Estimates

Nowcasts suggest that April CPI may be 0.4% for headline inflation and 0.3% for core inflation, which strips out food and energy prices. This is according to a nowcast model from the Cleveland Federal Reserve. Event forecasting site Kalshi forecasts inflation will range from 3.3% to 3.4% in April’s CPI report. The FOMC’s annual inflation goal is 2%. So, there’s still some way to go to hit that target.

Shelter Costs

Shelter costs have a key role to play in the upcoming CPI figures. Shelter carries a large weight in the CPI index and is experiencing faster inflation than other major categories. So far, shelter costs have been slower to cool in CPI figures than industry sources suggest, in part due to statistical techniques used in CPI calculations. The FOMC broadly anticipates that shelter costs should ease and perhaps help bring down inflation, but policymakers haven’t seen that yet. If that were to happen the large weight to shelter within the CPI could help get inflation back on track toward the FOMC’s 2% target.

The Fed Is Now Watching Employment More Closely

For the past two to three years, the Fed has focused almost exclusively on the inflation fight in first raising interest rates to relatively high levels and then holding them there for almost a year now. Of course, the FOMC monitors the totality of economic data, but inflation has been center stage.

Now that approach is shifting. With a weaker April jobs report and inflation running at more moderate levels, the FOMC is starting to watch employment data more closely. It could be that a softening jobs market provides the impetus for interest rate cuts, even if inflation is not as close to the Fed’s 2% annual target as desired. Therefore, though inflation figures will be closely watched, jobs reports may gain more attention from the FOMC.

What To Expect

April’s CPI release is expected to continue the trend of somewhat elevated inflation in 2024, with a monthly increase of around 0.3%. However, that development largely is anticipated by FOMC officials and markets. Were inflation to come in lower than expected, that could potentially accelerate interest rate cuts. If inflation comes in higher, then unless the job market softens, that could prompt discussion of further delaying rate cuts.