'Positive Momentum': Inflation Hit a Four-Year Low in April. Here's What It Means for Interest Rate Cuts. The U.S. Bureau of Labor Statistics released its April consumer price index report on Tuesday.
By Sherin Shibu Edited by Melissa Malamut
Key Takeaways
- Inflation reached an annual rate of 2.3% in April, less than forecasts predicted and a four-year low.
- Experts told Entrepreneur that the Federal Reserve will approach rate cuts cautiously in light of the data.
Inflation fell in April to its lowest rate since February 2021, per the latest data released Tuesday by the U.S. Bureau of Labor Statistics (BLS).
The consumer price index (CPI), which measures the prices of key goods and services, tracked that inflation was at an annual rate of 2.3% in April, a decline from 2.4% in March and a four-year low.
The prices of core goods, excluding the volatile food and energy categories, rose 0.2% from March to April, below industry forecasts of 0.3%. Meanwhile, the yearly increase in core goods of 2.8% aligned with industry predictions. According to Bloomberg, consumer prices overall rose less than expected in April.
April's CPI data indicates "positive momentum," Rob Holston, EY global and Americas consumer products sector leader, told Entrepreneur in a statement.
"Brands should use the positive momentum to strengthen consumer connections and rethink value," Holston stated. "Those that move with the market can thrive – building stronger, more meaningful relationships with consumers."
Related: The Fed Kept Rates Unchanged, But an Industry Veteran Says 'Mortgage Rates Will Drop.' Here's Why.
Shelter costs were the main reason for the CPI increase in April. The category alone rose 0.3% from March to April, accounting for more than half of the overall monthly increase, per BLS. Energy costs also rose 0.7% over the month, but used car prices were down 0.5% and food prices dropped 0.1%.
Meanwhile, the price of eggs decreased by 12.7% from March to April, the largest price drop in the category since 1984, though prices were still up 49.3% from a year ago.
How Will the CPI Report Impact Rate Cuts?
Gregory Daco, EY's chief economist, told Entrepreneur in a statement that EY now anticipates only two rate cuts instead of three for the year, and predicts that the first rate cut will happen in September instead of July.
"For the Fed, tame inflation dynamics and resilient labor market conditions support the case for holding rates steady beyond mid-year," Daco explained.
Related: U.S. Businesses Added 155,000 New Jobs in March, According to ADP Data: 'A Good One for the Economy'
Federal Reserve policymakers held rates steady at 4.25% to 4.5% after the Federal Open Market Committee meeting earlier this month. The last time the Fed cut rates was at its December meeting, when it lowered rates by 0.25%.
Austin Schaul, head of research at financial planning firm Avantax, told Entrepreneur that the April CPI report was "a win for the Fed."
"With headline inflation easing to 2.3% – the lowest since February 2021 – Fed Chair Powell has more reason to stay patient on rate cuts," Schaul stated.
Daco cautioned that upcoming CPI reports will reflect trade policies, like tariffs. President Donald Trump announced last month that he would levy a universal 10% tariff on all countries.
On Monday, the U.S. announced it would cut its tariff rate on Chinese imports to 30% from 145% amid trade talks.
Schaul says that the recent trade de-escalation gives the Fed "some valuable breathing space."
"Maybe it's not a green light for cuts just yet, but it's a foot in the door, keeping it open for action if growth slows," he stated.
