WASHINGTON (AP) — Led by lower food and auto prices, inflation in the United States cooled slightly last month after three elevated readings, likely bringing a cautious sigh of relief to Federal Reserve officials and President Joe Biden’s reelection team should.
Consumer prices rose 0.3% from March to April, the Labor Department said Wednesday, down slightly from 0.4% the previous month. Year-on-year inflation fell from 3.5% to 3.4%. And a measure of underlying inflation that excludes fluctuating food and energy costs hit its lowest level in three years.
Inflation was unexpectedly high in the first three months of this year after falling steadily in the second half of 2023. The elevated readings had dampened hopes that the worst rise in inflation in four decades could be tamed and raised fears that prices could rise again.
Whether inflation continues to fall could have a significant impact on the presidential race. Republican critics of Biden have tried to blame the president for the high prices in an attempt to prevent his re-election. Although hiring remains resilient and wage growth is mighty on average, consumer prices in general are still well above their pre-pandemic levels.
Wednesday’s report provides some reassurance that the pace of price increases may be slowing again. While the latest figures show inflation is still well above the Fed’s 2 percent target, this is the first time this year that the figure has fallen year-on-year. And price increases eased in some service industries, such as hotels, health care and auto repairs, which had previously driven high inflation.
The report “was a small step in the right direction,” said Danielle Hale, chief economist at Realtor.com. “The fight against inflation is not over yet, but the worsening trend observed in the first quarter of 2024 may be over.”
Fed Chairman Jerome Powell had responded to high inflation readings earlier in the year by dropping his previous suggestions that interest rate cuts were likely in 2024. Instead, he stressed that Fed policymakers need “greater confidence” that inflation will fall to its 2% target before cutting lending rates from high levels.
Some economists suspect that the Fed could cut interest rates twice more this year if inflation – and the overall economy – continues to chilly, which would reduce the cost of mortgages, auto loans and credit cards, among other things.
A separate report on retail sales, also released Wednesday, showed that Americans’ spending at stores and restaurants remained flat in April after rising significantly in March. A more cautious consumer could reassure the Fed that inflation will continue to chilly.
Wednesday’s inflation data “keeps alive the prospect of a Fed rate cut in September,” said Kathy Bostjancic, chief economist at Nationwide Financial. “The weak retail sales also speak for this.”
Wall Street traders seemed to agree, sending stock prices higher and bond yields lower in morning trading. The broad S&P 500 stock index rose around 0.5% to an intraday record high. The yield on the 10-year Treasury note fell, a sign that traders expect lower interest rates in the future. Mortgage rates, which tend to follow the 10-year yield, could also fall.
Food prices for individual items fell in April, giving shoppers a break. Egg prices, which fluctuated after bird flu, fell 7.3%. The prices for recent and used cars also fell. In contrast, both gasoline and clothing prices skyrocketed.
Excluding volatile food and energy costs, so-called core prices rose 0.3% in March-April, after rising 0.4% for three straight months. Year-on-year, core prices rose 3.6% in April, compared to 3.8% in March. The Fed closely tracks core prices, which tend to provide a better indication of where inflation is headed.
For consumers and businesses, sustained lower inflation would bring welcome stability.
Pat Overson, co-owner of Overson Roofing in Mesa, Arizona, is among those who have already experienced a period of milder inflation. Its lumber, labor and asphalt shingle costs stabilized last year after rising sharply from 2020 to 2022.
While he now charges $12,000 to $15,000 for a typical roof replacement that cost $10,000 to $12,000 in 2020, he said the price range has remained roughly stable since 2022.
“Inflation has leveled off for us,” he said.
He said lumber volumes have increased by up to 75% during the pandemic as factories closed. Since then, the price has fallen sharply, but has settled at a higher price than before the pandemic. Labor costs have also stabilized, Overson added.
Consumers are still buying recent roofs, although Overson sees signs that they are becoming more cautious. Customers are demanding more quotes for each project, Overson said, and in some cases replacing just part of a roof instead of the entire roof. More and more of his customers are also financing repair costs.
In a statement Wednesday, Biden acknowledged that “prices are still too high.” But he said his measures would lower prescription drug prices and encourage home construction to reduce housing costs. He also called on grocery chains to reduce food prices for consumers.
Meanwhile, Donald Trump, the presumptive Republican presidential nominee, claimed in a radio interview on Wednesday: “On top of the inflation that we’ve suffered, there’s a lot of inflation that’s so bad.”
In a trend that has been frustrating for the Fed’s inflation fighters, apartment rental prices remained stubbornly high in April, rising 0.4% from March. Average apartment rents are 5.4% higher than the previous year. Rent and other housing costs accounted for two-thirds of the year-over-year escalate in core prices.
Rents skyrocketed during the pandemic as more Americans chose to live alone or sought more housing. Although rents for recent leases are rising at a much slower rate, consistent with pre-pandemic patterns, the previous increases are still increasing the government’s price data.
Powell described rents in Amsterdam on Tuesday as “a bit puzzling” as measurements of leases for recent apartments show recent rents are barely rising. Such weaker data does not appear to have yet been incorporated into the government’s measures, which cover all rents, including for tenants who renew their leases and face larger increases. Powell said the government’s actions should ultimately lead to a slowdown in rental growth.
With 11 rate hikes from March 2022 to July 2023, Fed policymakers raised its key interest rate to a two-decade high of 5.3% to curb rising prices, which peaked at 9.1% in June 2022.
___
Associated Press Writer Josh Boak contributed to this report.
