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April Inflation Eases From 40-Year High, But Core Prices Stay Elevated

By Martin Baccardax

Updated at 10:57 am EST

U.S. inflation eased modestly from the fastest pace in four decades last month, data from the Bureau of Labor Statistics indicated Wednesday,  but core consumer price pressures continued to bubble higher, suggesting a longer-than-expected run of elevated readings in the world's biggest economy.

The headline consumer price index for the month of April was estimated to have risen 8.3% from last year, down from the 8.5% pace in March, which was the fastest rate since December of 1981. On a monthly basis, inflation was up 0.3%, the BLS said, compared to the March surge of 1.2%

However, so-called core inflation, which strips-out volatile components such as food and energy prices, rose 0.6% on the month, and 6.2% on the year, near the highest since February of 1991, the report noted, with the both the annual and monthly reading coming in just ahead of the Street consensus forecast.

Huge increases in airfares, which were up 33% from last year, as well as used car prices and veterinary fees and delivery service costs contributed to the core price gains, which suggest inflation pressures may be more deeply imbedded into the world's biggest economy.

"Today’s read is a stark reminder that the journey to pre-pandemic levels of inflation will be a long one. Although inflation slowed from March, the market’s reaction suggests that record high prices continue to weigh heavy on investors psyches," said Mike Loewengart, managing director for investment strategy at E*TRADE from Morgan Stanley. "And with inflation persistently hot, the Fed has more fodder for increased rate hikes, which the market doesn’t often welcome with open arms."

Stocks on Wall Street were active following the data release, with the Dow Jones Industrial Average last seen 244 points higher on the session, with the S&P 500, which is down 16% for the year, rising 20 points. The tech-focused Nasdaq fell 45 points.

Benchmark 10-year U.S. Treasury bond yields rose 5 basis points to 3.02% following the data, before easing to 2.987% and ahead of a planned auction later this afternoon, while the US dollar index, which tracks the greenback against a basket of six global currencies, fell 0.3% from a near 20-year high to 103.526

The CME Group's FedWatch tool is showing an 88% chance of a 50 basis point rate hike in June, but less than a 12% chance of the 75 basis point move that was starting to price into rate trading late last month. 

The Atlanta Federal Reserve's GDPNow forecasting tool, a real-time benchmark, suggests U.S. economic growth has now slowed to a 1.8% clip, compared to the -1.4% contraction estimate for the three months ending in March.

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