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May 10, 2019 Blog 1 min read
The increase in the CPI last month reflected a rise in gas prices, but inflation remains well anchored.

 April 2019 CPI

The consumer price index (CPI) increased 0.3% in April from the month prior, modestly below expectations for 0.4%. Excluding the usually more volatile food and energy prices, core CPI rose by a scant 0.1% in April, also softer than expectations.

A surge in energy costs drove the headline increase, driven by a 5.7% spike in gasoline prices.

The trailing 12-month gauge edged up to 2.0%, while core inflation also ticked up modestly to 2.1%. While fluctuations in food and energy costs over the past year contributed to a bit more volatility in the headline CPI, the core measure has held comparatively steady at just a touch above 2% over that period.

The Fed has stuck with their story that inflationary pressures appear largely transitory, reinforced by various measures of inflation expectations that remain fairly muted. Today’s report does nothing to change that.

Strength in the labor market is expected to keep some upward pressure on inflation, as exceptionally low unemployment, a confident consumer base, and moderate wage growth should continue to support consumer spending. Still, recent improvement in worker productivity should help to blunt the impact of rising labor costs.

The biggest wild card today is the trade rift with China and the imposition of additional tariffs that will raise the price even further on a broad range of goods imported from China. Those costs will be borne by both businesses and consumers to varying degrees, creating upward pressure on prices and taking a bite out of spending the longer they are in place.

For now, inflation still looks to be remarkably steady. Coupled with the slowdown in the overall pace of growth and a moderate deceleration in the pace of job creation, the Fed looks reasonably well positioned to continue to stand pat on rates for the time being.

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