April inflation headlines a busy data week

Inflation

The Consumer Price Index (CPI), the main measure of inflation in the United States, came in below market expectations but still rose 0.30% in April. April was the first month since November 2023 where CPI came in below the forecasted value. The energy index saw a monthly increase of 1.10% with gasoline as a large contributor. CPI increased 3.40% from 12 months ago, slightly lower than expectations of a 3.50% increase.

Core CPI, which excludes the food and energy indices, increased 0.30% from March and 3.60% from a year ago, both lower than forecasts of 0.40% and 3.70%, respectively. Shelter was largely responsible for core CPI growth in April, increasing by 0.40%. Auto insurance continued its balloon in cost, jumping 1.80% from March and a staggering 22.60% year-over-year.

The Producer Price Index (PPI), which measures what producers receive for the goods they produce, increased 0.50% in April. Exceeding market expectations of a 0.30% increase, April’s jump was largely driven by a 0.60% increase in the Index for final demand services. Final demand goods increased by 0.40%, highlighted by a 2.00% surge in energy. April PPI increased 2.30% year-over-year, marking the largest year-over-year growth since April 2023. Core PPI, which excludes food and energy, also rose 0.40% in April, beating expectations of 0.20%.

Other news

With inflation continuing to rise, U.S. retail sales unexpectedly remained flat in April. Economists had projected a 0.40% increase in April after a 0.70% increase in February and a downwardly revised gain of 0.60% in March. Spending at gas stations led the monthly gains, rising by 3.10%. Elsewhere, clothing and clothing accessories stores saw a 1.60% monthly increase, while spending at grocery stores jumped by 0.60%. Online spending dropped significantly in April, falling by 1.20%. Spending decreases were also seen at motor vehicles and parts dealers (-0.80%) and home furniture stores (-0.50%).

In the face of rising prices and high interest rates, credit card debt continues to plague Americans. The Federal Reserve Bank of New York reported that credit card debt totaled $1.12 trillion as of the first quarter of 2024, slightly off the all-time high of $1.13 trillion in the fourth quarter of 2023. The average debt per consumer rose 8.50% year-over-year, reaching $6,218. According to TransUnion,“ serious delinquencies,” those that are past 90-days due, reached their highest point since 2010.

Sustained high rates also caused home builder confidence to drop for the first time since November. May’s National Association of Home Builders (NAHB) Index dropped six points to 45, falling short of market expectations of 51. Home builders’ confidence had rebounded in 2024 after a strong decline in the back-half of 2023, but mortgage rates have averaged over 7.00% for the past four weeks, weighing on both home builders and home purchasers.

The market reacts

A slew of Federal Reserve Presidents spoke last week after inflation data was released, indicating that, while April’s reading provided much-needed relief, rates may stay elevated for longer than originally expected. The market currently has the first rate cut priced in for September and a second 2024 rate cut in December.

Given the current forward curve, many U.S. corporates are exploring hedging future anticipated fixed-rate issuances with pre-issuance swaps or T-locks. Companies have also continued to take advantage of the interest pickup locked in via cross-currency swaps.

The week ahead

A quieter week awaits after last week’s flurry of economic data. Investors are keen to see how the market evolves after last week’s inflation data. On Wednesday, April existing home sales and minutes from the Fed’s May FOMC meeting will be released, followed by new home sales and durable goods orders later in the week.