The Bureau of Labor Statistics’ latest Consumer Price Index (CPI) report, one measure of inflation, will be released Wednesday morning. Economists’ averaged forecast for April’s headline CPI is expected to rise 0.41%, according to Bloomberg, while the headline CPI for the year ending in April is predicted to rise 4.99%.
Here are five things to keep in mind for the April report.
Inflation Remains Elevated
The forecasts for April means it’s possible that inflation will remain too high – or “elevated” – above the Federal Reserve’s ideal yearly inflation rate of 2%.
This idea is ever more present when the predictions are compared with March’s CPI numbers, where last month the headline CPI rose to 0.1% and for the year ending in March the rate was 5%, meaning, theoretically, inflation will rise on a monthly basis and remain unchanged on a yearly basis.
And, with core CPI – inflation stripped of food and energy prices, given their volatility – economists’ predictions for April show that inflation will remain largely unchanged. The April forecast is 0.4%, the same as March’s core CPI, while the forecast for the year ending in April is 5.5%, slightly lower than the 5.6% for the year ending in March.
…But It’s Too Soon To Tell if the Fed Will Raise Interest Rates Again
Last week, the Fed raised short term interest rates to between 5% and 5.25%, the 10th consecutive hike made within the past 14 months. In remarks to reporters, Jerome Powell, chair of the Fed, had said it’s possible rates could be raised again.
Before the Fed ponders another rate hike, to be deliberated in mid-June, it still has two more inflation reports to pore over – the April report and the May report.
And Don’t Be Starstruck By April’s Added Jobs
Complicating whether or not interest rates are hiked is a seemingly robust labor market. As indicated by April’s jobs report, released last week, 253,000 jobs were added, the unemployment rate was 3.4%, the lowest since May 1969, and the average hourly earnings for the year ending in April rose to 4.4%, padding consumers’ wallets with the money that could drive up demand for goods and services and thereby driving up prices.
Stan Shipley, senior managing economist at Evercore ISI, cautioned against reading too much into the April jobs report, pointing out that significant revisions were made to the jobs added for February and March – from an originally reported 311,000 added jobs in February, revised to 248,000, and an originally reported 263,000 added jobs in March, revised to 165,000.
“Once you start to see revisions, they tend to creep in like cockroaches,” Shipley said, adding that he’s expecting to see more revisions moving forward, which should give a more accurate reading of the anticipated slowed economic growth the Fed is seeking.
Used Vehicle Prices Could Return to Pre-Pandemic Normalcy
The prices of used vehicles skyrocketed in 2021 amid supply chain issues born out of the pandemic but have since trended downward significantly within the last year, going into the negatives.
Used vehicles, Shipley explained, is a good metric for measuring the spending habits of middle and low-income consumers, given its relative affordability compared to prices of new vehicles.
“if they’re comfortable (financially) they’ll buy, if they’re not they won’t buy it,” he said.
That being said, William Adams, chief economist of Comerica Bank, predicts that the price of used vehicles will revert back to their pre-pandemic levels, in part due to an increase in auto loans that has eroded consumer purchasing power.
Upswings in Oil and Airfare Prices
Within the last year, consumers have redirected their discretionary spending from goods to experiences. This includes the purchase of airline tickets, and the pent up demand is expected to increase the costs of airline tickets.
Adams will be keeping a close eye on the price of oil in the report, noting the “strong correlation between fluctuations in crude oil prices and the costs of airfares.”