PARIS (Reuters) – Consumer prices in the United States rose less quickly than expected in April, suggesting that inflation resumed its downward trend at the start of the second quarter, strengthening financial markets’ hopes of a cut in interest rates in September.

According to data released Wednesday by the Labor Department, the consumer price index (CPI) increased 0.3% month-on-month in April after increasing 0.4% the previous month. Over one year, it increased by 3.4%, after a gain of 3.5% in March. Its rate had reached a peak at 9.1% in June 2022.

Economists polled by Reuters on average forecast growth of 0.4% for the month of April and 3.4% year-on-year.

On Wall Street, futures contracts on the main indices suggest an opening up 0.37% for the Dow Jones, 0.46% for the Standard & Poor’s 500 and 0.45% for the Nasdaq.

On the bond market, the yield on ten-year Treasuries fell almost nine basis points, to 4.3653%, after falling to 4.340%, the lowest since April 5.

On the foreign exchange market, the dollar fell by 0.49% against a basket of reference currencies.

AN ANTICIPATED RATE DROP FOR SEPTEMBER

Inflation started to rise again in the first quarter in the United States in a context of strong domestic demand, after having moderated for a large part of 2023.

The slowdown recorded in April therefore constitutes a relief for the markets, especially since the producer price statistics (PPI), published on Tuesday, rebounded to 0.5% over one month.

Economists believe inflation is driven by services in auto insurance, housing and health care.

They expect, however, that inflationary pressures will ease this quarter and that price increases will gradually move closer to the Federal Reserve’s 2% target as the labor market cools.

This sentiment is shared by the Chairman of the American Federal Reserve (Fed), Jerome Powell, who said on Tuesday: “I expect inflation to come back down (…) on a monthly basis to levels closer to lowest figures of last year.

Financial markets anticipate a first cut in the Fed’s key rates in September, while a few economists favor July for the start of this cycle of monetary easing. Other economists, in the minority, predict that a rate cut could take place in December, if at all this year.

The Fed decided at the beginning of the month to leave the fed funds rate target unchanged at 5.25%-5.50% for the sixth consecutive time. It raised it by 525 basis points between March 2022 and July 2023.

Excluding volatile energy and food prices, the underlying CPI in April rose 0.3% month-on-month, compared to a 0.4% rise in March and a consensus of 0. 3%.

Over one year, the underlying CPI index grew by 3.6%, a pace in line with consensus and the weakest since April 2021, after an increase of 3.8% in March.

(Written by Claude Chendjou, with Lucia Mutikani in Washington, edited by Bertrand Boucey)

Copyright © 2024 Thomson Reuters