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Inflation Finally Falls

After months of disappointing data, inflation showed signs of weakening this week, with the latest monthly report from the Bureau of Labor Statistics setting off a stock market surge, boosting hopes for a couple interest rate cuts by year’s end, and bringing relief—at least until the next monthly report—for all those who are opposed to rising prices. (Show of hands?)  

April numbers suggest things are headed in the right direction. The .03% increase for the Consumer Price Index in April was the lowest month-over-month bump in half a year, and the cumulative annual reading of 3.6% for core inflation was the lowest number for that category in three years. One factor: Retail sales remained unchanged in April, indicating a potential slowdown in consumer spending—crucial for controlling inflation.  

A Bloomberg headline dunked on economic detractors. In “Sorry Inflation Doomers, We’re Headed in the Right Direction,” columnist Jonathan Levin said “the odds look reasonably good that the rest of 2024 could be marked by continued improvement—and that a rate cut or two is still in the cards.”   

Uncertainty remains, however. Others—important others, like Fed Chair Jerome Powell—are not so sure. A day before the inflation report, he told the Foreign Bankers’ Association in Amsterdam that he had lost his earlier confidence in a steady inflation decline, following unexpectedly high readings earlier this year.  

And while it beats the alternative of more rapid acceleration, even a 3.4% annual rate of inflation is still “irritatingly high,” Bankrate analyst Mark Hamrick told Yahoo! Finance, and “requires that interest rates remain elevated in the near term.”  

As long as they do, they will continue to squeeze bank net interest income and household budgets. And even with yesterday’s positive news, many don’t expect the Fed to reduce interest rates until September at the earliest. But if you’re looking for green shoots on the path to more normal inflation and interest rates, there’s this: Following yesterday’s CPI news, mortgage rates dipped ever so slightly (but are still hovering around an average of 7% mark for a 30-year fixed), according to Bankrate.