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PNC Senior Economist Kurt Rankin: CPI Inflation Below PNC's Expectations

Michigan Business Network
May 15, 2024 1:00 PM

pncfsg Croppedat 3.4% (Topline) and 3.6% (Core) for April 2024

  • Topline CPI grew at a 0.3% pace in April 2024 versus the month prior in seasonally-adjusted terms.
  • Core CPI, less Food & Energy, also posted a 0.3% monthly gain in April 2024.
  • Housing CPI finally relented in April 2024, gaining only 0.2% over the month prior.
  • Services less Rent of Shelter also came in well below its first-quarter pace at +0.2% for the month.

Consumer Price Index (CPI) inflation came in at +0.3% in April 2024 versus March on a seasonally adjusted basis. This translates to a 3.4% gain versus one year ago. The Core CPI inflation metric also posted a 0.3% gain in April – falling to its slowest monthly gain since October 2023. Producer cost pressures have re-entered the equation regarding inflation risks, but April’s CPI reading offers hope that an outright upward trend in consumer prices can be avoided this summer. 

A nosedive in Housing CPI in April 2024 contributed significantly to lower-than-expected inflation results for the month. The Housing component comprises more than 40% of the overall CPI index and has been pushed higher by the lingering effects or rising home prices and rents over the past few years. April’s +0.2% monthly gain for Housing CPI translates to an annualized pace of just 2.7% - a calculation which assumes that April’s price growth conditions were to persist for a full year. This is the slowest reading on Housing CPI since January 2021 (+0.6%) and will have to be the start of a softer trend for the category if overall inflation has any chance of reaching the Fed’s 2% target. 

Services less Rent of Shelter is another sub-index to the CPI report that has stymied progress toward the Fed’s 2% goal over the past year. April 2024’s CPI report provided welcome news on that front of the battle with inflation, coming in at +0.2% for the month. This result follows an average 0.7% pace in the first three months of 2024. Although the year-over-year gain for Services less Rent of Shelter accelerated to a 4.9% pace, versus 4.8% in March, the annualized gain was only 2.7%. This is an example of the convoluted nature of year-over-year inflation trends. The implications of current conditions are far more critical to forward-looking analysis than what happened over the past year. I.e., Will current conditions in Housing and Services price growth be able to persist, allowing inflation to reach the Fed’s 2% goal? One data point does not make a trend, but the April 2024 results at least provide a starting point for optimism for the months to come. 

Energy prices saw strong gains in April 2024 at +1.1% for the month. Gasoline prices alone gained 2.8% versus March 2024. Both categories have now recorded three consecutive strong monthly gains after falling through most of the second half of 2023. Their respective index values – at 290.6 and 318.2 – unwound most of their declines going back to September 2023 (291.7 & 332.0, respectively). Oil prices seem to have ceased their upward trend through the first few weeks of May, which suggests that some moderation in Energy CPI categories is on tap in the near term. But the busy and energy-heavy summer months could undermine the development of a near-term equilibrium. 

Virtually every Fed official has stressed that they have adjusted their expectations for monetary policy in 2024 because of the first quarter’s inflation results. While most of them express hope and a desire to lower interest rates when inflation data permits, they admit that the trend to open 2024 does not meet their standards for doing so. The April 2024 CPI report should provide some sense of relief among Fed officials and monetary policy Doves in general, as the most stubborn CPI categories of Housing and Services less Rent of Shelter offered their first glimpse of easing in some time. More evidence will be demanded before expressed Fed sentiment turns back toward lowering interest rates more aggressively. But PNC’s expectation of two 25 basis point rate cuts this year, in September and December, now looks like a more robust prediction than it has at any point in 2024 thus far.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance, and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.

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