- The consumer price index data for April shows that core inflation moderated last month, while retail sales cooled more than expected.
- S&P 500 futures moved higher in early Wednesday stock market action after the CPI inflation data, as markets weighed the implications for the Fed rate-cut outlook.
- The overall consumer price index rose 0.3% on the month, matching forecasts. The 12-month CPI inflation rate eased to 3.4%, also in line.
April’s consumer price index data reveals a moderation in core inflation and an unexpected cooling in retail sales, influencing S&P 500 futures and the Fed rate-cut outlook.
CPI Inflation Report Hits And Misses
The core CPI, which strips out volatile food and energy prices, rose 0.3% vs. March levels, in line with estimates. The annual core CPI inflation rate eased to 3.6% from 3.8% in March, as expected. The core CPI inflation rate peaked at a 40-year-high 6.6% in September 2022. On an unrounded basis, the core CPI rose 0.29% in April, better than most forecasts, many of which were on either side of 0.35%. Goods prices dipped 0.1% on the month, while nonenergy service prices rose 0.4%.
Retail Sales
Overall retail sales were unchanged in April, trailing forecasts for a 0.4% gain. March’s initially reported 0.7% gain was revised to 0.6%. Excluding autos, retail sales rose 0.2%, matching expectations. The strong 1.1% initially reported gain in nonauto retail sales was revised down to 0.9%.
More CPI Details
Energy prices rose 1.1% on the month. Food prices were unchanged, as a 0.3% increase in prices for food away from home offset a 0.2% dip in prices for food consumed at home. New vehicle prices dipped 0.4% as the price of used cars and trucks fell 1.4%. Rent and owner’s equivalent rent both rose 0.4%, while hotel and motel rates slipped 0.2%. Medical care services prices rose 0.4%. Transportation services prices rose 0.9%, despite a 0.8% decline in airline fares. Motor vehicle insurance prices rose 1.8%, continuing the recent trend.
Fed Rate-Cut Odds
After the CPI inflation data, markets were pricing in 33% odds of a Fed rate cut by the July 31 meeting, unchanged from before the report. Odds of a rate cut by the Sept. 18 Fed meeting rose to 72% from 68%.
S&P 500
S&P 500 futures added 0.5% shortly release of April CPI inflation data, pointing to a possible new record. On Tuesday, the S&P 500 finished up 0.5% after some encouraging producer price index data on health care inflation. The S&P 500 closed just 0.15% off its March 28 all-time closing high. The 10-year Treasury yield slid nine basis points to 4.36%.
Conclusion
April’s CPI data indicates a moderation in core inflation and a surprising cooling in retail sales. This has had implications for the S&P 500 futures and the Fed rate-cut outlook. The S&P 500 futures have moved higher, and the odds for a Fed rate cut by the July 31 meeting remain at 33%, with a rise to 72% for a cut by the Sept. 18 meeting.
