On April CPI: Oh, What a Relief It Is

Headline and core CPI both reported above the Fed’s target in April at an annual rate. But headline beat consensus, and core met consensus. This was a substantial relief after yesterday’s hot PPI report, and propelled stocks to new all-time highs (ending the correction we predicted in late March). Core ex-OER printed at a new cycle low on a year-over-year basis, converging with our revised monetarist model, at or below the Fed’s target now for eight months straight. Just four items out of about 175, representing about 38% of index weight, explain more than all April’s inflation. That means April would have been downright deflation without them. Most unconventional inflation metrics confirm an April deceleration. After an interruption in the first quarter of a disinflation that began more than two years ago, with the money supply still in slight contraction, there was never going to be a 1970s-style resurgence of inflation. Futures markets have built in another half rate cut.