The US April CPI inflation figures have recently been released and were in line with expectations. While headline inflation showed some loss of momentum, core inflation increased to 5.1%. Although progress is being made in significant components, it is still progressing more gradually.
The recent increase in core inflation is mainly due to a sharp reversal in used car prices, which rose by 1.2% 3m/3m from -0.2%, particularly from goods, marking the highest level since June 2021. However, since there was a sharp decline in car prices in the 2nd market in April, this trend appears to be temporary.
Since the momentum in core service prices is linked to rent, the increase in the last three months has dropped to 8%, down from 8.6% a month ago, confirming that we are approaching a peak due to rental prices lagging behind home prices by one year.
Core services, which are most important for the Federal Reserve, have decreased from 5.8% to 5.1% year-on-year without a change in momentum. However, since the monthly increase showed only a small increase of 0.1%, this is a positive development.
As progress is slow due to wage declines, core inflation is expected to be around 3.6% in December. The April inflation report can be interpreted as a sign that the Federal Reserve will start to pause in June.
