User prices in the US increased less than expected in April, suggesting that inflation eased again at the start of the second quarter. This indirectly provides a boost to financial market expectations for a reduction in profit rates in September.
The consumer price index (CPI) increased as much as 0.3% last month after increasing 0.4% in March and February, according to the Bureau of Labor Statistics' Department of Labor on Wednesday. In the 12 months ending April, CPI increased by 3.4% after rising 3.5% in March. Economists reviewed by Reuters expect the CPI to increase 0.4% in the month and rise 3.4% year-on-year.
The annual increase in user rates has eased from a peak of 9.1% in June 2022. Inflation rose in the first quarter amid strong domestic demand after declining for most of last year.
Last month's decline came as a relief after data on Tuesday showed a jump in retail prices in April. Economists say inflation is being driven by service providers such as auto insurance, housing and health care adjusting to higher costs.
Analysts expect inflationary pressures to ease at this rate and prices to gradually move toward the Federal Reserve's 2% target as the labor market cools. That sentiment was shared by Fed Chair Jerome Powell who said on Tuesday "I expect that inflation will fall back on a monthly basis to the lower levels we experienced last year."
Financial markets expect the US central bank to start reducing lending costs in September. A small number of economists expect the Fed to begin its easing cycle in July, while others believe rate cuts could take effect in December, if at all.
The central bank earlier this month left its benchmark overnight benefit rate unchanged in the current range of 5.25%-5.50%, where it has been since July. The Fed has raised its policy rate by 525 base points since March 2022.
Excluding volatile food and energy components, the CPI increased by 0.3% in April after increasing 0.4% in March. In the 12 months ending April, the core CPI increased by 3.6%. The reading was the smallest annual increase since April 2021 and was followed by a 3.8% increase in March.
