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Inflation has eased in the last month, as the consumer price index rose 3.4% year over year in April.
Northeastern University economist Bob Triest says that the CPI’s 0.1% decrease from March was “almost exactly as had been expected,” but nevertheless “good news.”
“Inflation continues its gradual downward trajectory and that’s good news because there’s been concern recently that it wasn’t coming down as fast as it had been expected at the start of the year,” says Triest, professor and chair of the Economics Department at Northeastern.
The consumer price index is a gauge for goods and service costs across the U.S. economy. It rose 3.4% in April from a year ago, the Labor Department announced Wednesday. Prices excluding food and energy costs rose 3.6%, the slowest rate since 2021.
The CPI rose 3.5% from a year ago in March. That means that inflation — the rate of increase in prices over a period of time — eased slightly after stalling in the first three months of the year.
Recent inflation peaked at 9.1% in June 2022, and the Federal Reserve has raised interest rates aggressively in an attempt to bring inflation down to 2%.
Triest says the resumption of this downward inflationary trend “should be very reassuring to the Fed and to the public.”
“It’s reassuring when you look especially at the core price index — the core CPI, which excludes food and energy prices — measured on a year over year basis that has very steadily been decreasing now for close to two years,” Triest says.
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Indeed, Wall Street seems to have been reassured as all three major indexes closed at record highs on Wednesday.
“The question will be, does this provide enough evidence for the Fed to stick to their expectation of being able to decrease the federal funds rate toward the end of the year?” Triest continued. “I think the consensus likely will be, ‘Yeah, it does.’”
In fact, Triest sees a 0.25 rate cut likely for September, followed by similar cuts.
“I think very gradually I’d expect 25 basis point decreases,” Triest says. “The only thing that would result in their bringing the rate down more quickly — say with 50 basis point decreases rather than 25 basis point — would be if the economy is starting to soften more quickly than is currently expected.”
In the meantime, increases in the personal consumption expenditure price index (the Fed’s preferred inflation indicator), coming months’ inflation data and other economic indicators will be closely analyzed both by the Fed and Wall Street.
“The Fed’s in a balancing act — they want to bring inflation down to 2%, but they want to do so without sending the economy into recession,” Triest says. “So far, the economy has been remarkably resilient to the increases in the federal funds rate that were orchestrated to bring down the inflation rate.
“But if we start getting data indicating that economic activity is slowing more quickly than has been recently, then the Fed might move to decrease interest rates more substantially or earlier than is currently anticipated.”
