Inflation slowed in April after several months of faster-than-expected price increases, according to data released Wednesday by the Labor Department.
The consumer price index, a closely watched inflation gauge, rose 0.3 percent in April and 3.4 percent over the previous 12 months, in line with economist expectations. Both monthly and annual inflation fell 0.1 percentage points from their March levels.
Housing and gas prices were the key drivers behind April’s rise in consumer prices, with the indexes for shelter and gasoline contributing more than 70 percent of the monthly increase, according to the Bureau of Labor Statistics.
Housing prices were up 0.4 percent in April and 5.5 percent year-over-year, while gas prices rose 2.8 percent last month and 1.2 percent in the past year.
The new inflation numbers come amid increasing concern among policymakers and investors over the path of price increases in the U.S. After falling sharply throughout the past two years, inflation had appeared to plateau with plenty of room left to fall toward the Federal Reserve’s target of 2 percent annual price increases.
However, April’s numbers offer “a modicum of hope that inflation is cooling, albeit slowly,” said Quincy Krosby, chief global strategist for LPL Financial.
“The Fed will certainly need a series of cooler reports for adjusting its rate easing timetable, but the CPI report suggests that the path towards 2 percent is a bit less bumpy,” Krosby said in a statement.
Higher-than-expected inflation has forced the Fed to delay plans to cut interest rates from their current baseline of 5.25 percent to 5 percent, the highest level in more than two decades.
A majority of traders now expect the central bank to make its first rate cut in September, according to the CME FedWatch Tool.
“The Fed would probably cut rates at their next decision if they weren’t coming out of the biggest surge in inflation in over 40 years,” Bill Adams, chief economist for Comerica Bank, said in a statement.
“But after missing their inflation target badly during the post-pandemic recovery, they are anxious to do better on that half of their dual mandate, even at the cost of risking a weaker economy and job market,” he added.
Sticky inflation is also a major challenge for President Biden and Democrats, who are struggling to turn around public opinion about the economy ahead of the 2024 election.
Job growth has remained strong, the jobless rate has lingered under 4 percent for the longest stretch since the 1960s and the US economy has powered through predictions of recession. The U.S. has added a record number of jobs under Biden, who took office as the U.S. economy was crawling back from the COVID-19 recession, and the recovery took far shorter than many economists anticipated.
Even so, the surge of inflation that followed and its lingering impact on the economy has depressed consumer sentiment and Biden’s polling on economic issues.
Updated at 8:48 a.m. EDT.