CPI Inflation Soothes Fed Fears As Retail Sales Slow; S&P 500 Hits New High

Consumer price index data for April showed that core inflation moderated last month, while retail sales cooled more than expected. The S&P 500 opened solidly higher in Wednesday stock market action after the CPI inflation data, as markets weighed the implications for the Fed rate-cut outlook.

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CPI Inflation Report Hits And Misses

The overall consumer price index rose 0.3% on the month, matching forecasts. The 12-month CPI inflation rate eased to to 3.4%, also in line.

The core CPI, which strips out volatile food and energy prices, rose 0.3% vs. March levels, in line with estimates. The annual core CPI inflation rate eased to 3.6% from 3.8% in March, as expected. The core CPI inflation rate peaked at a 40-year-high 6.6% in September 2022.

On an unrounded basis, the core CPI rose 0.29% in April, better than most forecasts, many of which were on either side of 0.35%.

Core goods prices dipped 0.1% on the month, while nonenergy service prices rose 0.4%.

Retail Sales

Overall retail sales were unchanged in April, trailing forecasts for a 0.4% gain. March’s initially reported 0.7% gain was revised to 0.6%.

Excluding autos, retail sales rose 0.2%, matching expectations. The strong 1.1% initially reported gain in nonauto retail sales was revised down to 0.9%.

More CPI Details

Energy prices rose 1.1% on the month. Food prices were unchanged, as a 0.3% increase in prices for food away from home offset a 0.2% dip in prices for food consumed at home.

New vehicle prices dipped 0.4% as the price of used cars and trucks fell 1.4%.

Rent and owner’s equivalent rent both rose 0.4%, while hotel and motel rates slipped 0.2%.

Medical care services prices rose 0.4%. Transportation services prices rose 0.9%, despite a 0.8% decline in airline fares.

CPI Vs. PCE Price Index

The combination of Tuesday’s producer price index and today’s CPI points to good news for the Fed’s primary inflation rate, the core PCE price index, which uses data from both series.

“We infer from today’s CPI data and yesterday’s PPI numbers that the core PCE rose by 0.24% in April, wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics.

While CPI airline fares dipped 0.8% on the month, the PCE price index uses the PPI measure of airline passenger services, which fell 3.8% in April.

Shepherdson noted that the PPI’s 0.1% in auto insurance prices was a “silver lining” for the core PCE price index, even as CPI auto insurance prices rose 1.8%.

Fed Rate-Cut Odds

After the CPI inflation data, markets were pricing in 31% odds of a Fed rate cut by the July 31 meeting, down from 33% before the report. However, odds of a rate cut by the Sept. 18 Fed meeting rose to 71% from 68%.

S&P 500

The S&P 500 rose 0.8% after release of April CPI inflation data, touching a record intraday high. On Tuesday, the S&P 500 finished up 0.5% after some encouraging producer price index data on health care inflation. The S&P 500 closed just 0.15% off its March 28 all-time closing high.

The 10-year Treasury yield slid seven basis points to 4.37%.

Be sure to read IBD’s The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.

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