April CPI Hits New High Since May 2023. Energy Price Hikes Drive Inflation Rebound Beyond Expectations; No Hope for Fed Rate Cuts This Year?

TradingKey - On Tuesday (May 12) ET, the U.S. Department of Labor released the CPI. The Consumer Price Index for April rose 3.8% year-over-year, higher than the forecast of 3.7% and well above last month's 3.3%, marking the fastest year-over-year increase since May 2023. The core CPI rose 2.8% year-over-year, exceeding the forecast of 2.7% and the previous reading of 2.6%, reflecting an unexpected rebound in inflation.

Following the release of the April CPI data, the benchmark 10-year U.S. Treasury yield maintained its upward trend and is currently at 4.431%.

Regarding energy, energy inflation in April rose 17.9% year-over-year, significantly higher than the 12.5% recorded in March, contributing to over 40% of the total inflation increase. Within this category, gasoline inflation rose 28.4% year-over-year, and fuel oil inflation rose 54.3%. In addition, food and housing costs also increased.

Analysis indicates that this month's CPI clearly reflects the impact of rising gasoline prices caused by war. Against the backdrop of the ongoing U.S.-Iran war, these effects are expected to transmit to more commodities in the future. Moreover, because inflation is outstripping wage growth, overall purchasing power is declining. Should oil prices continue to rise, consumers may gradually cut back on spending.

In terms of monetary policy, the higher-than-expected inflation data will further squeeze the Federal Reserve's room for rate cuts in the short term. Combined with the previously released stronger-than-expected non-farm payroll data, the likelihood of a Fed rate cut this year has significantly decreased.