What You Need to Know Ahead of Wednesday's Much Anticipated CPI Inflation Report

Update, May 14, 2024: This article has been updated to include additional commentary from economists and Tuesday's Producer Price Index figures.

Inflation likely stayed higher than Fed officials would like in April if early forecasts are correct. 

The cost of living as measured by the Consumer Price Index likely rose 3.4% over the year in April, down from a 3.5% increase in March according to a survey of forecasters by Dow Jones Newswires and the Wall Street Journal, ahead of the official figures due from the Bureau of Labor Statistics Wednesday.

The Federal Reserve Bank of Cleveland’s “nowcast,” which projects the CPI based on economic data as it comes in, also called for a 3.5% annual increase as of Monday. Either would be well above the Federal Reserve’s goal of a 2% annual inflation rate. 

Prices have risen faster than expected for the first three months of the year, showing that progress against inflation—which had fallen significantly last year—has stalled.

High inflation has been tough on household budgets not only because of steeper prices for things like gas and groceries but also because it’s forced the Federal Reserve to delay cutting its benchmark interest rate, which has kept interest rates higher for all kinds of borrowing such as mortgages and credit cards. 

Fed May Be Getting The Data It Wants, Just Very Slowly

Fed officials have said they are waiting for signs that inflation is on a firm downward trajectory before they’ll consider cutting the fed funds rate from the 23-year high where they’ve held it since last July. Inflation in line with forecasts would leave the Fed unlikely to cut that rate before December, Stephen Juneau and Michael Gapen, economists at Bank of America, wrote in a commentary. 

Rising gasoline prices in April likely fueled inflation to remain stubbornly high, they said. 

However, the details of the report may be a bit more encouraging than the headline. “Core” inflation, which excludes volatile prices for food and energy, and which is closely watched by economists as an indicator of overall inflation trends, likely rose 0.3% over the month if the consensus estimate holds true, down from 0.4% in March.

Economists found reason for optimism at used car auctions, where wholesale prices fell 2.3% in April, for a 14% year-over-year decline according to data provider Mannheim. Used car prices make up a significant portion of the overall inflation level. However, changes in wholesale used car prices usually affect inflation data at a delay of a few months, economists at BMO Capital Markets wrote in a commentary, so April’s inflation data may not reflect that dip in prices. 

Wholesale Prices May Be a Bad Omen

On Tuesday, inflation in wholesale inflation jumped higher than expected in April, sparking some concerns that consumer inflation, as reported by CPI, could follow suit.

The measurement of price changes at the wholesaler level came in higher than anticipated and was higher than last month.

“Today’s PPI is a bad omen for tomorrow’s CPI number—despite the relationship between the two being somewhat complicated—and if the market is spooked by today’s higher-than-expected PPI number, then it will be even more disturbed by a higher-than-expected CPI number tomorrow,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.