Is there good news on the way for U.S. inflation? Wall Street is hoping that a key inflation report for April on Friday will show that prices are falling more slowly. This could help stop the recent drop in the stock market.
When the April numbers come out on Friday morning, the PCE index is expected to have gone up by 0.3%. Some analysts think the increase will be even smaller, at 0.2%.
The Federal Reserve likes the PCE as a price indicator because it gives the most complete picture of inflation. The index went up a lot more than expected in the first three months of the year, which stopped the Fed from cutting interest rates as planned.
When food and energy prices are taken out, the so-called “core rate of inflation” is what investors really care about. The Fed thinks that the core rate is a better way to guess what inflation will be like in the future.
We expect the core rate to rise by a less strong 0.2%. This would be the smallest rise in 2024 so far.
The rate of growth in the PCE index could slow from 2.7% per year to 2.6% per year if the predictions come true. That’s pretty close to the Fed’s goal of 2% inflation a year.
The core rate’s rise over the past year could drop from 2.8% to 2.7%, which would be the lowest level in more than three years.
The consumer price index, on the other hand, showed a 3.4% rise in the year ending in April.
The PCE report shouldn’t come as a big surprise. Because so much of the report is based on data that has already been released, the index doesn’t stray too far from Wall Street’s DJIA predictions.
Still, even a less bad PCE inflation report for April is not likely to make it more likely that the Fed will cut interest rates soon.
The Fed was let down by the rise in inflation in early 2024, so they are not likely to lower rates until the middle or end of summer. And only if prices keep going down.
When looked at as an annual rate, the rise in prices in the first three months of the year is actually more than 3%. The Fed wants the three-month rate to fall below 3% before it starts to feel less worried about inflation.
“No matter how you look at the data, we think the bigger issue is that there are still a lot of inflation pressures coming,” said Richard Moody, chief economist at Regions Financial.
Wall Street will also be paying close attention to how much people spend in the inflation report. It is expected to go up by a small 0.3%.
The economy may have lost some speed since consumer spending slowed to a 2% annual rate in the first quarter from growth rates of 3% or more in the last two quarters of 2023.
There is a chance that the Fed could lower interest rates if the economy slows down. This would make inflation less likely to rise.
Lower interest rates on loans would help people who are buying homes or cars and businesses that want to invest a lot.
