Thomas Julien, Research Analyst at Natixis, notes that US total CPI rose by 0.2% MoM in April (in line with expectations) with a rebound in energy prices but another soft print for core prices (+0.1% MoM versus +0.2% expected).
“Core prices were held back by a broad based weakening in the price of services (except rents). All in all, inflation lost 0.2pts to settle at 2.2% while core inflation lost 0.1pt to 1.9%. Looking forward, with expectations of rising oil prices and as the labor market is tightening, we expect inflation to accelerate in the medium run.”
“Consumer prices increased by 0.2% MoM in April, in line with consensus expectations but below ours (+0.3% MoM). As expected, energy prices rebounded (+1.1%), food prices rose by 0.2% but core prices recovered less than expected: +0.1% versus +0.2% for consensus expectations.”
“Beside the ongoing (and expected) decline in the price of core goods prices, the factors explaining the softness in core prices were different compared to the March report: in the previous month the decline in core services prices was driven by a one-off decline in the price of telephone services and a slowdown in the price of rent. In April, the price of rent went back up on its previous trend while the price of telephone services declined at a much slower pace. This time, core prices were held back by a broad based deceleration in the price of services (excluding rents): education, medical care, transportation and recreation.”
“All in all, total inflation lost 0.2pts to 2.2% in April while core inflation lost 0.1pt to 1.9%.”
“In short, report surprised on the downside with core prices recovering less than expected and core inflation falling back below 1.9%. Looking forward, we still expect total inflation to accelerate in the medium run because: (i) in our view oil prices should keep increasing, (ii) we see slightly less downward pressures from external factors such as excess capacity and USD appreciation and (iii) the tightening in labor market conditions is consistent with an acceleration in core prices and not a deceleration as seen in report.”