Apparent Progress

May 11, 2023

Here we are again – another month, another set of inflation readings. April’s reports were both very encouraging.

The Consumer Price Index (CPI) report for April was released this week, and it showed clear progress in the ongoing battle against inflation. CPI rose 0.4% in April and 4.9% year over year – both 0.1% lower than comparable numbers in March.

This marks the 10th month that the year-over-year change has declined. This month’s report showed cooling in prices of core services (a much watched number), which is very good news as those increases have proven to be sticky.

Another metric of inflation, Producer Price Index, was also released this week. While it’s less relevant to many than CPI, it is still an important barometer of pricing and also showed an encouraging trend line, rising 0.2%, less than the 0.3% anticipated month over month. On an annual basis, it was up 2.3%, the lowest reading since January 2021.

It’s clear that progress is being made against inflation. The equity market response was somewhat muted and bond yields fell. These reports were deemed to be good news – and not just because it may mean lower prices in a variety of areas for all of us in the coming months.

It’s also good news as it may guide future interest rate policy. As you may recall from last week’s note, the Federal Reserve indicated at their last meeting that future rate hikes would be data dependent. They made a point to indicate that more increases were not a given – but rather they would evaluate them based on key data moving forward (including inflation reports). It appears that these latest prints on CPI and PPI would be supportive of a pause in rate hikes as both show supportive trend lines and support the narrative that progress is being made in fighting inflation (without the need for more hikes)

One month does not solve the fight against inflation, but these reports from April were certainly steps in the right direction. As Professor Scott Galloway put it, “the complex operation of getting inflation under control without triggering a recession is working.” Let’s hope the trend continues.

Until next week,

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