A closely watched measure of inflation eased last month, an encouraging sign for the economy after three straight months of uncomfortably rapid price increases.
The Consumer Price Index climbed 3.4 percent in April, down from 3.5 percent in March, the Labor Department said Wednesday. The “core” index — which strips out volatile food and fuel prices in order to give a sense of the underlying trend — rose 3.6 percent last month, down from 3.8 percent a month earlier. It was the lowest annual increase in core inflation since early 2021.
The slowdown will likely come as welcome news to consumers, and as a relief to policymakers at the Federal Reserve, who have been concerned that they were losing ground in their fight against inflation. But economists cautioned that one month of encouraging data was far from enough to set those worries to rest.
“I would characterize it as a small step in the right direction,” said Stephen Stanley, chief U.S. economist at Santander.
Both overall and core prices rose 0.3 percent from the previous month, down from 0.4 percent in February and March.
Inflation fell rapidly last year, giving rise to hopes that the Fed was on the verge of succeeding in its effort to rein in price increases without causing a recession, and that the central bank could soon begin cutting interest rates. But progress has since stalled, and investors have all but given up hope of rate cuts before September.
The encouraging inflation report on Wednesday is unlikely to change those expectations. But it could be a step toward giving policymakers confidence that inflation is returning to normal, which they have said they need before they begin cutting rates, which are currently set at about 5.3 percent.
“It feels like a big one,” Sarah House, senior economist at Wells Fargo, said of the report. “It’s crunchtime if the Fed’s going to get in a cut this year.”
Had April’s price data come in hotter than anticipated — as has happened repeatedly in recent months — it could have led policymakers to conclude that high rates need more time to bring inflation to heel. Speaking at an event in Amsterdam on Tuesday, Jerome H. Powell, the Fed chair, reiterated that recent inflation readings had made him more cautious about cutting rates.
“We did not expect this to be a smooth road, but these were higher than I think anybody expected,” he said. “What that has told us is that we will need to be patient and let restrictive policy do its work.”
Any further delay would be bad news for investors, who have been eagerly anticipating lower rates, and for low- and moderate-income Americans, who are increasingly struggling to manage the burden of higher borrowing costs. Data from the Federal Reserve Bank of New York on Tuesday showed that a rising share of borrowers are falling behind on their credit card bills as rates on those debts have skyrocketed.
Wednesday’s report showed improvement in some of the categories that had driven the recent uptick in inflation. Health insurance costs, which jumped in March, rose more slowly in April. Car insurance rates, too, rose more slowly, although still at an uncomfortably rapid clip.
But prices in one key part of the economy remained stubborn: housing. For more than a year, forecasters have been predicting that the government’s measure of housing inflation would ease, citing private-sector data showing rent increases slowing.
Instead, housing costs in the Consumer Price Index have continued to rise more quickly than before the pandemic, a pattern that continued in April.
Still, the latest data could restore some confidence that policymakers will be able to keep bringing down inflation without causing a recession. The Fed had seemed on track to do that last year, defying predictions that high interest rates would inevitably cause a large increase in unemployment.
But as the fight has dragged on, some economists have become more concerned that the Fed will prove unable to control inflation fully without slowing the economy so much that people lose their jobs. Job growth slowed more than expected in April, and the unemployment rate has gradually crept up.
“The labor market has held up so well,” Ms. House said. “But the longer we keep interest rates where they are, the more I get worried about the labor market side.”
