Consumer prices rose 0.2% last month, bringing the annual inflation rate to 2.3%, an unexpectedly cooler reading than the 2.4% increase seen in March, according to the latest Consumer Price Index data released Tuesday by the Bureau of Labor Statistics. Our strategists still expect that the inflation data will moderate enough for the Fed to cut interest rates this year, but the recent strength of the labor market and higher-than-expected inflation may delay these cuts to the latter half of the year. Though it has fallen sharply since its peak in mid-2022, inflation’s resilience almost certainly will assure no Fed rate cuts at its next meeting March 19-20, and possibly into the summer, according to current market pricing.

That may mean that the impact of tariffs on new cars is muted in May’s CPI report. This document may provide information about the brokerage and investment advisory services provided by J.P. The agreements entered into with JPMS, and corresponding disclosures provided with respect to the different products and services provided by JPMS (including our Form ADV disclosure brochure, if and when applicable), contain important information about the capacity in which we will be acting.

The Bureau of Labor Statistics is set to deliver another round of mixed signals about the course of inflation on Wednesday when it publishes the official report for the Consumer Price Index for March. Egg prices tumbled, falling 12.7%, though they were still up 49.3% from a year ago. Markets reacted little to the news, with stock futures pointing flat to slightly lower and Treasury yields mixed.

Consumer Price Index and Inflation

“Progress on cooling inflation appears to have resumed in the second quarter, keeping Fed rate cuts on the table for later this year, though the exact timing will remain ‘data dependent,’” Scott Anderson, Chief U.S. economist at BMO Capital Markets, wrote in a commentary. May’s CPI report may show that larger firms, like the Fed are, for now, taking a wait and see approach in response to tariffs. However, it is possible that price increases are noticeable in upcoming CPIs report for the months of June and July if recent statements from larger corporations are any guide. Other categories could show a similar picture as corporations take some time to measure their reaction to tariffs and potentially adjust pricing.

That’s the other part of the Fed’s economic goal and if that softens, then that could alter the path of interest rates. However, though inflation nowcasts are useful and sometimes superior to other inflation estimates, in recent months they have tended to overestimate inflation. For example, we have started to see some disinflation in shelter costs in 2023 so far.

• This crucial data will provide insights into inflation trends and could significantly influence market sentiment moving forward.
• On a month-over-month basis, the CPI rose 0.2%, lighter than the 0.3% pace forecast by economists.
• The result for consumers and businesses could be a longer wait for relief on borrowing costs, as the Federal Reserve’s benchmark rate helps determine what banks, credit card companies and other lenders charge borrowers.
• The average price for a dozen Grade A eggs dropped 12.7% to $5.12 in April, marking the first month-to-month decline in egg prices since October 2024.

Historical Data

As of Monday, financial markets were pricing in more than a 75% chance that the Fed will cut the rate at its September meeting, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data. Recently, policymakers have said they’re closely monitoring inflation data for signs that price increases are on their way back to their goal of a 2% annual growth rate before making any cuts. The upcoming CPI report comes amidst broader economic uncertainties, including global geopolitical risks and potential policy shifts under the incoming Trump administration.

“They could have shifted their attention from inflation to labor … months ago. There are cracks forming in the labor market backdrop.” April’s cooler-than-expected data may also give the Fed more breathing room to hold off on cutting rates as it assesses the impact of Mr. Trump’s trade policies, said Carl Weinberg, chief economist with High Frequency Economics, said in a report. With inflation still expected to pick up later this year, albeit at a lower pace than earlier forecast, the Fed may decide to cut rates twice in 2025, rather than the three cuts Daco had earlier expected. He added that he believes the first rate cut will occur in September, rather than July. The Consumer Price Index in April rose 2.3% on an annual basis, rising less than economists had expected yet still reflecting price hikes that remain above the Federal Reserve’s goal of bringing down inflation to a 2% rate.

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Shelter prices again were the main culprit in pushing up the inflation gauge. The category, which makes about one-third of the index weighting, increased 0.3% in April, accounting for more than half the overall move, according to the BLS. The monthly readings were a bit best cryptocurrency brokers higher than in March though price increases remain well off their highs of three years ago. Therefore, the next two CPI readings are likely to inform the path for interest rates. If CPI comes in much lower than expected, then maybe the Fed will forgo another 2023 interest rate hike.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money. A report in line with expectations could leave the Fed on track to begin cutting interest rates in June, Juneau and Gapen wrote. Markets expect the president’s softening position to lead to less of a chance of interest rate cuts this year. Traders had been expecting the Federal Reserve to start easing in June, with at least three total reductions likely this year.

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• Core inflation paints a clearer picture of the trajectory of inflation since it excludes the volatile food and energy categories.
• With the score being one down, one to go on confirming that the early-year jump in prices either was a fluke or the last gasp of inflation, a positive CPI reading could mean the Federal Reserve is able to turn its gaze to other economic challenges, such as the slowing labor market.
• Wages are currently rising at a 5.6% annual rate according to this tracker from the Atlanta Federal Reserve.

What to Expect From Wednesday’s Closely Watched CPI Inflation Report

Leave out those prices for food and gas—which can rise and fall for reasons that have little to do how to read forex charts with broader inflation trends—and “core” inflation is expected to have stayed at a 3.4% annual increase, the same as in May, according to the median forecast. Policymakers pay closer attention to core inflation when setting interest rates. The Fed cut rates several times last year as inflation fell, but the possibility of tariffs shook the outlook.

Traders started the year anticipating a rapid pace of cuts, then pulled back into expecting only one or two before the latest swing in the other direction. “At this point, the inflationary pressure that we saw build has really been dissipated significantly,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. The recent pace of inflation is “a nonissue … There’s this broad expectation that the worst is easily behind us.” Still, egg prices remain near historic highs as a persistent outbreak of bird flu continues to wipe out flocks of egg-laying hens.

Core Inflation Likely Shows Less Price Growth

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Inflation rate rose by 2.3% in April, CPI report shows. Here’s what the data means.

Although, markets do expect the FOMC to cut interest rates moderately later this year. This chart shows the model’s estimates of the inflation risk premium, the real risk premium, and the real interest rate. The inflation risk premium is a measure of the premium investors require for the possibility that inflation may rise or fall more than they expect over the period in which they hold a bond. Similarly, the real risk premium is a measure of the compensation investors require for holding real (inflation-protected) bonds over some period, given the fact that future short-term rates might be different from what they expect. Both the real risk premium and the inflation risk premium can be interpreted as investors’ assessment of risk. In the case of the real risk premium, it is an assessment of the risk of unexpected changes in the real interest rate, and in the case of the inflation risk premium, it is an assessment of the risk of unexpected changes in inflation.

What the January 2025 CPI report could mean for the Fed and investors

10% tariffs on most imports went into effect on April 5 with higher tariffs for China and earlier tariffs for steel and aluminum exports. Bank deposit accounts and related services, such as checking, savings and bank lending, are offered by JPMorgan Chase Bank, N.A. Member FDIC. Immediately following the January CPI release, stock futures fell and both the dollar and Treasury yields rose.

Given the high weighting to the category, May’s CPI report may be shaped as much by trends in shelter costs as the impact of tariffs. Core goods (excluding food and energy) rose by 0.3% MoM in January, the firmest reading in nearly two years.8 Part of the increase could be related to consumers front-loading goods purchases ahead of any potential tariffs. Core CPI excludes volatile food and energy prices, and is considered to be a better predictor of future inflation.