- Core CPI was higher than consensus
- Breadth of price increases remains high
- Gas and groceries were higher as expected
- Core goods prices were tame again but this may not last
- PCE effects also depend upon tomorrow’s PPI
- Watch for trimmed mean CPI estimate
- US CPI / core CPI, m/m %, SA, April:
- Actual: 0.6 / 0.4
- Scotia: 0.7 / 0.4
- Consensus: 0.6 / 0.3
- Prior: unrevised from 0.9 / 0.2
Core CPI inflation matched my estimate but it’s important to remove shelter this time. Upon doing so, core services inflation accelerated in ways that continue to defy linkages with wages, while the breadth of price increases continues to rise.
Markets reacted to the data and then hawkish comments by Chicago Fed President Goolsbee by pushing the US 2s yield higher and adding a slight amount to the roughly 10bps
Chart 1 shows core CPI accelerated to 4.6% m/m at a seasonally adjusted and annualized rate (SAAR).
The breadth of price increases remains very high (chart 2).
The reading was not light even after removal of the statistical quirk represented by shelter’s treatment. Shelter surged by 0.6% m/m SA with rent up 0.6% and owners’ equivalent rent up 0.5%. A good part of these effects traced themselves to the BLS merely catching up to more properly capturing shelter given April CPI was the first chance for it to address last October’s omission of shelter prices due to the government shutdown. That omission carried lasting effects upon the shelter methodology. Look through this effect as a temporary statistical quirk as shelter is likely to be softer next time.
What is key, however, is that core services CPI ex-energy and ex-shelter was up by 0.45% m/m SA, or 5½% m/m SAAR. That’s explosive and maintains the multi-month pattern of generally warm trend readings (chart 3).
Core goods CPI ex-food and energy was tame again which served as a partial offset to hot core services. Core goods ex-food and energy CPI was flat after a trio of mild 0.1% m/m SA readings (chart 4 shows annualized figures). This may indicate that tariff pass through effects have waned, but a) that’s not the same as saying that broader and more complex supply chain effects are over, and b) tariff risk remains in play given the way Trump is talking. Furthermore, there could easily be future pass through effects of broadly higher commodities prices into core goods prices over coming months and quarters.
Seasonally unadjusted prices were warmer than typical for April (chart 5) and the seasonal adjustment factor was higher than normal which added to the heat (chart 6).
Charts 7–15 shows several components. Again, largely ignore shelter.
Grocery prices shot higher which didn’t take long! ‘Food at home’ (ie: groceries) was up by 0.7% m/m SA. That reflects a combination of factors but be careful about blaming it on the war. The war doesn’t directly impact meat prices, for example, and they were up by 1.8% m/m SA and 8.8% y/y with beef leading the way. Trump’s solution is to cut beef tariffs. Consumers have the option of substituting toward pork and poultry prices that are barely budging, or seafood that is up by less than beef.
Gasoline prices increased sharply again but by less than the initial shock effect in March.
Airfare and clothing were among the upsides but so was the low weight on financial services due to tax preparation services that some may have felt were more complex this time due to the Big Beautiful Bill’s effects.
Adjusting for weighting differences, today’s CPI gain of 0.6% m/m with core up 0.4% imply that PCE will be up by 0.4% with core PCE up 0.25%. We’ll update this calculation tomorrow when we get the producer price figures given that some of those prices are included in PCE.
Charts 16–17 break down the basket in unweighted and weighted m/m changes. Charts 18–19 do likewise for y/y rates.
Also please see the accompanying table that provides further detail and micro charts.
Watch for the Cleveland Fed’s trimmed mean CPI measure given comments by incoming Chair Warsh about his preferences.
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