Source: Economics Group of Wells Fargo Bank, N.A.
Summary
Consumer price inflation rebounded in April but continued to subside on trend. The headline index advanced 0.22% while the core rose 0.24%, both a touch below the average of the Bloomberg survey estimates. The 0.1% rise in core goods prices conveyed only glimmers of tariffs beginning to push prices higher, as a drop in vehicle and apparel prices nearly offset widespread strength among other goods prices. Meantime, services inflation picked up in April (+0.3%) on the back of a rebound in motor vehicle insurance and smaller decline in travel, but slipped to 3.6% on a year-ago basis—the smallest increase since late 2021.
The core CPI has increased 2.8% over the past 12 months and at a 2.1% annualized rate over the past three months. This marks a continuation of a slow but steady trend toward lower inflation in the United States. However, higher tariffs threaten to derail this trend, and our expectation is that prices for goods including vehicles and apparel will rise in the coming months. A continued deceleration in services prices should help offset some impact from higher goods prices, but we expect the net effect to be a rise in the core CPI to 3.6% by year-end. We believe this leaves the FOMC in “wait and see” mode due to upside risk for both inflation and unemployment. We still expect the first rate cut from the FOMC to occur at the September meeting.