Weekly Economic Trends and Indicators

The Headlines:

The Consumer Price Index (CPI) rose at a seasonally adjusted annual rate of 0.2% in April according to the Bureau of Labor Statistics (BLS). This follows a decrease of 0.1% in March. The CPI inflation rate over the last twelve months was 2.3% before seasonal adjustment.

The BLS also reported that the Producer Price Index (PPI) for final demand decreased 0.5% in April. The PPI for final demand was unchanged in March.

The University of Michigan Index of Consumer Sentiment was unchanged in May, ending a series of four consecutive months of decline. One-year-ahead inflation expectations in the May survey were 6.6%, revised down from a preliminary 7.3%. Five-year-ahead inflation expectations were 4.2%, revised down from a preliminary 4.6%

Finally, the Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) price index increased by 0.1% in April. The 12-month PCE inflation rate was 2.1%. After excluding the more volatile food and energy components, the index rose 0.1% in April and 2.5% over the last year.

The Details:

In the CPI data, the category of “food at home” decreased by 0.4%, led by a 1.6% decrease in prices for meat, poultry, fish, and eggs. New vehicle prices were unchanged, and used vehicle prices were down 0.5%. Subcategories in the core CPI (excluding food and energy) with significant changes were hospital services (up 0.6%), motor vehicle maintenance and repair (up 0.7%), and motor vehicle insurance (up 0.6%). Rent and owners’ equivalent rent were up 0.3% and 0.4%, respectively, in keeping with recent trends.

The Context:

By multiple metrics the inflation rate has been inching closer to the Fed’s goal of 2% for the last few months after moving higher at the end of last year. The pause in interest rate cuts since December is part of the explanation. However, it may also be due to the fact that the economy has slowed measurably in the first few months of this year.

Personal consumption expenditures increased by only 0.2% in April, down from 0.7% in March and 0.5% in February. Also, revised first quarter GDP data released this week showed only a 1.2% increase in consumption—the lowest since the second quarter of 2023.

If the policy uncertainty surrounding tariffs were not an issue, this would probably be enough to warrant additional interest rate cuts. However, the Fed noted in their minutes from the last meeting that, “upside risks to inflation had risen, primarily reflecting the potential effects of tariff increases.” This will probably keep rate cuts on hold until we see the price effects of tariffs. Next week we will look at some possible scenarios for tariff effects based on recent experience.

Next week: Effects of tariffs