Here’s everything you can expect from Wednesday’s key report on inflation

Inflation trends may have become a little less gloomy in April, but there’s still a good chance they’ll be distasteful enough for the Fed to suspend interest rate policy.

The consumer price index, a broad measure of the cost of goods and services in the market, is expected to rise further this month, according to Dow Jones consensus forecasts, although annual inflation is expected to decline slightly. has been done.

Prices for all items are expected to rise by 0.4% compared to the same month in March, but the annualized rate is expected to decline slightly to 3.4% compared to 3.5% in the previous month. For key core measures excluding food and energy, each forecast was 0.3%, lower than March’s 0.4% rise, and 3.6%, down from 3.8%.

In remarks in Amsterdam on Tuesday, Federal Reserve Chairman Jerome Powell expressed hope that inflation would slow through the rest of the year, but acknowledged progress was slow and said interest rates were unlikely to move soon. further directions were shown.

“We expect inflation to decline on a monthly basis to levels close to last year’s lows,” he told attendees at a banking conference. “Looking at these statistics for the first three months of this year, I would say that confidence is not as high as before. So we will have to wait and see where the inflation statistics settle.”

Continuing above expectations for the first quarter, the producer price index rose 0.5% in April, almost double expectations for a challenging start to the second quarter. The index, which measures wholesale prices, rose at an annual rate of 2.2%, the highest level in a year.

The importance of Wednesday’s CPI release has also increased. The Department of Labor’s Bureau of Labor Statistics will release the data at 8:30 a.m. ET.

“This will be the most important read of the month” [excluding nonfarm payrolls] Dan North, senior economist at Allianz Trade North America, said that even if the report were released in line with consensus expectations, it would not be enough for the Fed to consider cutting interest rates by September. “It’s progress,” he added.

Indeed, financial markets have given up on expectations for an accommodative Fed, with expectations for at least six rate cuts since the start of the year now reduced to two, with the first rate cut unlikely before its September meeting. low.

But stock prices have remained resilient despite Fed tightening, and the focus has shifted instead to solid corporate earnings and economic growth.

Wall Street will be scrutinizing the CPI report for signs of how long inflation will continue to rise. Sentiment surveys in recent days have shown rising consumer inflation expectations, which the Fed believes is key to containing price pressures.

One of the key focuses on Wednesday was housing, as shelter-related costs account for about a third of the consumer price index. Fed officials have been hoping for an easing of pressure on the rental market as a sign that the strong disinflation seen in 2023 will return this year, but that has so far been thwarted.

“The slower inflation declines, the longer the Fed will be on the road to its inflation target,” said Erica Groshen, a senior economist at Cornell University’s School of Industrial and Labor Relations and a former senior official at the BLS and the New York Fed. Stated. “We don’t see any major changes in the housing market that would make us think it’s going to behave differently. Demographics change slowly. No explanation found in the past. “

A key component of shelter costs is called owner-equivalent rent, which is a hypothetical measure of how much owners think they will get to rent their homes. The annual rate of increase in March was 5.9%, down from a peak of more than 8% in April 2023, but still well above the level consistent with an overall inflation rate of 2%.

Fed officials have been willing to look at housing costs when considering policy, but continued price stickiness could change that. Central bankers even devised another measure known as the “supercore,” which looked at the cost of services excluding food, energy and housing services, but it may now be less meaningful.

“It’s very important that the Fed doesn’t get left behind on this,” Groshen said. “So the Fed will be more cautious about cutting rates. I don’t think this will be enough to cause the Fed to raise rates, but it will probably put more caution on the part of the Fed.”