Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.
Today, we are visited by the "PI" brothers, and present the latest data on consumer spending.
Consumer Prices Rose Less than Expected in April
Boy did we need that headline, especially after we found out producer prices rose more than expected in April just one day before the CPI release. As I’ve said before, CPI is PPI’s big brother, so a good CPI report can easily erase a bad PPI one.
Here’s the highlights of the April CPI report:
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Consumer prices rose 0.3% last month, slightly lower than the Dow Jones estimate of 0.4%.
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Shelter and gasoline prices accounted for over 70% of the monthly increase in CPI.
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Over the past year prices are up 3.4%, which matched expectations.
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Core CPI—which excludes food and energy prices—also rose 0.3% last month, and was 3.6% higher than a year ago.
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The 3.6% increase in core CPI over the past year is the lowest 12-month gain since April 2021.
Markets were happy with this report, mainly because the past few readings on inflation came in higher than expected. The slightly-lower-than-expected April increase in CPI has banks doubling down on their forecasts for rate cuts this year. In fact, both J.P. Morgan and Goldman Sachs expect the Fed to start cutting as early as July. Good luck with that.
I don’t see anything in the April CPI report to change my forecast of no rate cuts this year. Core inflation is still running 1.6% higher than the Fed’s target, and the unemployment rate has been under 4% since February 2022. But as I’ve said far too many times, remember that the Fed doesn’t have to cut short-term rates for 30-year mortgage rates to come down.
Retail Sales Flat in April
After posting solid increases in February and March, retail sales were unchanged in April. Economists were expecting a 0.4% increase in sales, so this data is worse than expected. The biggest increase in sales last month was at gas stations, where rising prices help fuel a 3.1% jump in sales. Nonstore retailers—aka internet sales—posted the biggest decline with 1.2% less sales than March.
Compared to a year ago, retail sales—which are not adjusted for inflation—are up 3.0%. That number may sound good but remember that prices rose 3.4% during that time so consumer spending is not keeping pace with inflation.
While both the April CPI and retail sales reports seem to show a cooling economy with slightly lower inflation, it’s just one month of data. And don’t forget the best measure of inflation—the core PCE index—doesn’t come out until May 31.
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