US April CPI confirms March “transitory” decline - Wells Fargo

According to analysts from Wells Fargo, the rebound seen today in April CPI data confirms that March’s unexpected decline was “transitory”. They see the data as a return closer to trend performance, that keeps the Federal Reserve on track for a June interest rate hike. 

Key Quotes: 

“Extending the theme we have witnessed this week with gains in both headline and core measures of import and producer prices, consumer inflation, as measured by the Consumer Price Index (CPI), also revealed a rebounding performance during the month of April. Admittedly a lower than expected rebound, headline CPI increased 0.2 percent in April from the 0.3 percent decline in March. Energy prices, which tend to be a significant factor in the monthly headline performance, rose 1.1 percent on the month, as all three major components—gasoline, natural gas and electricity—increased. Crude oil prices have fallen substantially in recent weeks and will likely influence next month’s headline CPI performance.”

“Consumer food prices extended its recent rising streak to four months, but underlying details were on the soft side. The index for food at home prices rose 0.2 percent, but was largely driven by an outsized gain in fruits and vegetables (2.2 percent). Four of the five major grocery store food components fell on the month. Food prices away from home edged up 0.2 percent in April and are up a modest 2.3 percent pace over the past
year.”

“The key question heading into today’s CPI report was whether the unexpected decline in March consumer inflation was “transitory” as the Fed and consensus believed, or the start of a new concerning trend. While April’s performance did rebound, the soft underlying performance is unlikely to quench concerns several Fed officials have expressed over the likelihood of reaching the Fed’s 2.0 percent target. That said, the labor market remains strong and communication from most Fed officials remains resolute that they remain focused on their tightening monetary policy path. While the April CPI performance was weaker than we had projected, our overall economic growth outlook remains in place and we do not think the recent soft inflation prints will deter Fed officials from raising rates at the June meeting.”