US CPI rises, but offers little for the buck

April CPI growth surprised modestly to the upside, with prices rising by 0.6% MoM, and 3.8% YoY.

The first of these prints matched expectations, marking a downshift from the 0.9% increase seen in March, but that was still not enough to see annual inflation meet market consensus, which had predicted a softer 3.7% number. Core CPI, meanwhile, rose 0.4% in April, 0.1pp above expectations, taking the annual growth rate for core prices to 2.8% YoY.Ordinarily, this stronger-than-predicted set of figures might be expected to trigger a significant FX reaction. On this occasion, the dollar has barely moved. We see several reasons underpinning the lack of market response.

First, much of the strength in headline price growth stems from elevated energy costs.

This should surprise no one, given recent geopolitical developments, and in isolation, is likely to be discounted by FOMC voters, absent evidence of broadening price pressures.

Second, this month also saw the unwind of a downward bias to CPI imparted by last autumn’s government shutdown.

At the time, BLS statisticians assumed that rent inflation was zero in October, given data collection challenges. That has been corrected in this latest release, in effect capturing two months of rising rental costs. So, while a sharp 0.55% single month jump in rents looks sizeable at first glance, this is consistent with the run-rate seen since the start of the year.

Aside from the aforementioned factors, other deviations relative to consensus appear to have been modest across the April CPI report.

It is that view, we think, that is reflected in the lack of dollar reaction. In any case, the April price data does little to shift the narrative for the Fed. As we noted on Friday, solid payroll figures likely killed off any prospect of rate cuts in 2026. But the bar to rate hikes is much higher, and today’s data is some way from meeting that threshold, leaving minimal impetus for the greenback.

Author:

Nick Rees, Head of Macro Research

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