An employee arranges a digital price tag for vegetables at Whole Foods Market store in the Silver Lake neighborhood of Los Angeles, California, U.S. (Photographer: Patrick T. Fallon/Bloomberg)

U.S. Consumer Prices Rise Less Than Forecast as Autos Drop

(Bloomberg) -- U.S. consumer prices rose by less than forecast in April as costs for automobiles and airfares declined, reducing chances that inflation will run significantly above the Federal Reserve’s target in coming months.

The consumer-price index advanced 0.2 percent from the prior month after a March decline of 0.1 percent, a Labor Department report showed Thursday, compared with the Bloomberg survey median of a 0.3 percent gain. Excluding food and energy, the core gauge was up a below-forecast 0.1 percent from March -- the least since November -- and 2.1 percent from a year earlier, compared with projections for 2.2 percent.

Prices for used cars had the biggest monthly drop since 2009 and airfares fell the most in four years. The dollar fell after the report suggested inflation isn’t flaring up in a way that would be troublesome for policy makers, despite higher freight costs, a 17-year low in the unemployment rate and tariffs that are burdening businesses. The Fed is projected to raise interest rates in June for the second time this year, though officials were divided in March over whether three or four total hikes in 2018 were warranted.

U.S. Consumer Prices Rise Less Than Forecast as Autos Drop

“This is a pretty soft print with a number of large declines,” said Omair Sharif, a senior U.S. economist at Societe Generale. “There’s no broad-based gain in inflation. It argues for the Fed sticking with the three-rate-hike type of plan.”

While rising gasoline prices are pinching Americans’ wallets, fuel is providing only a modest boost to the broad CPI, which rose 2.5 percent in April from a year earlier. Seasonally adjusted gas prices rose 3 percent in April from the previous month after a 4.9 percent drop in March, according to the report.

The core CPI reading brought the three-month annualized gain to 1.8 percent, the lowest since July, after 2.9 percent.

The shelter category rose 0.3 percent from the prior month after a 0.4 percent gain. Owners-equivalent rent, one of the categories designed to track rental prices, advanced 0.3 percent. Hotel and motel rates, which had posted an outsize gain in March, rose 0.8 percent in April.

What Our Economists Say

While market participants continue to scour the economic landscape for evidence that above-trend growth and below-neutral unemployment are fostering firmer price pressures, the April CPI results will provide only modest supporting evidence in this regard. Both core goods and service-inflation trends ceased their respective accelerations in the month.

-- Carl Riccadonna, Bloomberg Economics

Read more for the full reaction note from Bloomberg Economics.

Commerce Department figures released April 30 showed the Fed’s separate preferred gauge of inflation met policy makers’ 2 percent target in March for the first time in a year. The preferred core index, seen by officials as a better gauge of underlying inflation trends, was up 1.9 percent from March 2017.

Wages, which feed into inflation pressures, are growing only moderately even as the job market is tight. A separate report released Thursday by the Labor Department showed average hourly earnings adjusted for inflation rose 0.2 percent from April 2017.

Other Details

  • Energy prices rose 1.4 percent from previous month after 2.8 percent decline; food costs advanced 0.3 percent after 0.1 percent gain
  • Costs for new vehicles fell 0.5 percent after being unchanged the prior month; used-vehicle prices dropped 1.6 percent, most since March 2009, following a 0.3 percent decline
  • Airfares fell 2.7 percent, most since January 2014
  • Apparel prices increased 0.3 percent after falling 0.6 percent
  • Expenses for medical care rose 0.1 percent; these readings often vary from results for this category within the Fed’s preferred measure of inflation due to different methodologies
  • The CPI is the broadest of three price gauges from the Labor Department because it includes all goods and services. About 60 percent of the index covers the prices that consumers pay for services ranging from medical visits to airline fares, movie tickets and rents

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