Inflation Still Sticky
May 22, 2024
The stock market rallied to new highs after the Consumer Price Index (CPI) declined for the first time since January. Rising 3.4% from a year ago, April’s headline CPI came in slightly below March’s year-over-year increase of 3.5%. Although it indicated a deceleration in inflation, April’s uptick was still above the average annual increase of 3.3% since July 2023. Core CPI, which excludes food and energy, also declined from a year-over-year increase of 3.8% to 3.6%.
While the slowdown was a step in the right direction, inflation remains elevated. In particular, components of the CPI that are slower to change, such as housing and medical care, have been harder to tame. A proxy of these components, the Atlanta Fed’s sticky price consumer price index, is up 4.4% year over year, which is far above the pre-Covid level of 2.8%. After falling 2% in 2023, “sticky inflation” is only 0.2% lower year to date.
Before pivoting to rate cuts, the Federal Reserve will likely wait for several more months of data to confirm a steady pace of disinflation. Therefore, investors should expect rates to remain higher for longer.
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