April inflation eases slightly, but 2% target still out of reach

Consumer prices rose slower than anticipated in April but remained above last year’s levels, according to the Consumer Price Index (CPI) released by the Bureau of Labor Statistics (BLS).

On an annual basis, prices rose 3.4% in April, a slight softening from the 3.5% growth last month and in line with expectations. On a monthly basis, prices increased 0.3% after rising 0.4% the previous month and registering below the 0.4% growth economists projected. Core inflation, which excludes more volatile food and energy prices, increased 0.3%, below the 0.4% growth of the previous three months.  

Shelter and gas costs weighed heavily on consumer expenses, contributing to over 70% of the monthly increase in the index for all items. Flat food prices help offset the impact of higher energy costs.

April’s inflation reading breaks the string of consecutive increases that spurred concern over a second wave of inflation and a reignition of interest rate hikes.  Cooling inflation coupled with a slowdown in job gains in April could be enough to push the timeline up on when the Federal Reserve begins to dial back interest rates. 

At its May meeting, the central bank announced it would maintain the federal funds rate range at 5.25% to 5.5%, where rates have held steady since July. Fed officials have said they anticipate rate cuts for 2024 but need more confidence that inflation is heading toward the 2% target rate.

“The good news is that the Fed’s aggressive action to cool demand appears to be slowly bringing inflation back down to a more palatable level, although the path to 2% hasn’t been easy and still appears to be further out than policymakers would prefer,” Jim Baird, Plante Moran Financial Advisors’ chief investment officer, said. 

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Shelter costs significant contributor to high inflation

Shelter costs continued to be a driver of inflation in April.  They rose by 0.4% in April and 5.5% over the past year. While shelter costs continue to be a big driver of overall costs, the April reading is below the 5.7% registered in March and down from its peak of 8.2% in March 2023, according to Realtor.com Chief Economist Danielle Hale.

“Although market asking rents have slowed and are even declining in some markets, it takes some time for this to be reflected in overall shelter cost trends,” Hale said.  

That’s good news for the housing market because the Fed may soon begin to reverse its higher-for-longer stance and dial back interest rates, which could help stabilize mortgage costs. 

“Mortgage rates have similarly stopped climbing, but after five weeks of gains, they continue to exceed 7%,” Hale said. “To see mortgage rates dip below 7%, we’ll need to see inflation back on the path to 2%. Today’s data was a tiny step in the right direction and will likely provide some stability in rates at the current level and may even lead to some additional declines.”

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Consumers maxing out credit cards

High inflation and rising costs have pushed some consumers to increasingly rely on debt products, like credit cards, to make ends meet. A growing number of borrowers have maxed out their credit and are behind on payments, according to a recent report by the Federal Reserve Bank of New York.

Among the most significant users of credit cards were Gen Z and Millennial borrowers, as well as lower-income borrowers. Borrowers whose utilization rate was above 90% tended to fall delinquency on their payments over the last year.

“In the first quarter of 2024, credit card and auto loan transition rates into serious delinquency continued to rise across all age groups,” Joelle Scally, Regional Economic Principal within the Household and Public Policy Research Division at the New York Fed said in a statement. “An increasing number of borrowers missed credit card payments, revealing worsening financial distress among some households.”

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