US Inflation Cools Slightly, Reviving Soft-Landing Hopes
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Economics Research17 May 2024
  • US: Core inflation cools to 0.3% in Apr after holding at 0.4% for 3 months
  • Japan: 1Q GDP shrinks -2.0% in weaker-than-expected result as private consumption continues decline
  • China: PBOC keeps key policy rate unchanged; fixed asset investments projected to increase
  • India: Apr CPI moderates slightly as expected; 1Q24 GDP growth suggests c.7% y/y print within reach
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US: CPI inflation brings relief rally over the Fed’s last mile on inflation. Core inflation cooled to 0.3% m/m in April after holding at 0.4% for three months. The energy component saw the biggest increase at 1.1%, shelter inflation remained at 0.4% m/m. Advance retail sales were unchanged in April vs the consensus for a 0.4% m/m increase; the March figure was revised to 0.6% from 0.7%. On their own, these numbers still point to relatively firm price pressures. In our view, the shelter component may need to disinflate before core CPI can trend lower. At the very least, it does not look as if inflation is re-accelerating. The miss in retail sales is arguably a greater point of concern, but we take a nuanced view on this – retail sales figures are notoriously volatile, and a single print should not be taken as a clear signal that the US is slowing. That said, it does add to a string of recent downside data surprises in the US. 

The above data are consistent with Fed Chair Jerome Powell’s recent comment that inflation would decline again on a monthly basis, and that monetary policy was restrictive and working to weigh on consumer spending. Last Thursday’s (9 May) unexpected surge in initial jobless claims also aligned with Powell’s view that demand for workers was cooling and a recent New York Fed survey that consumers had depleted their surplus pandemic savings.

Overall, the Fed needs inflation to keep cooling on a monthly basis to gain sufficient confidence for inflation to return to the 2% inflation target. Until then, we see the Fed reducing the three rate cuts it projected in March at the June Federal Open Market Committee meeting. We forecast the Fed delivering two rate cuts in the second half of this year.

Figure 1: April inflation reading hints at cooling consumer demand


Source: Bureau of Labour Statistics, DBS



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