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How April’s Inflation Data Relieved Markets

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May. 14 2018, Updated 2:21 p.m. ET

Inflation grows 0.2% in April

On May 10, the Bureau of Labor Statistics reported that US consumer prices rose 0.2% in April. In contrast, they fell 0.1% in March. The April growth kept the uptrend in inflation (TIP) growth intact. Over the last 12 months, US inflation has grown 2.5%, a steep increase from the 1.6% growth recorded in June 2017. Core inflation (VTIP), which excludes volatile food and energy prices, rose just 0.1%, the slowest growth since November 2017. Over the last 12 months, core inflation has grown 2.1%, above the 2% target rate set by the Fed.

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Why inflation grew in April

Inflation grew primarily because of higher gasoline and housing (XHB) prices. Gasoline prices rose 3% in April, offsetting lower electricity and natural gas costs and resulting in a 1.4% increase in energy prices in April. A decline in new and used vehicles prices also drove inflation lower.

A sign of declining inflation?

Whereas April’s inflation numbers were lower than expected, overall inflation trends (SCHP) are upbeat. The producer price index has risen 2.6% in the past year, and core consumer price inflation has risen 2.1%. These growth rates are healthy, and the metrics are still rising. Higher oil (USO) prices and lower unemployment point to higher inflation in future months. In the next part of this series, we’ll analyze how markets reacted to the lower inflation data.

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