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Rent up, groceries down: Inflation cooled slightly in April, but consumers still face a mixed bag

Stocks responded positively to the news, with the S&P 500 hitting an all-time high and the Dow Jones and NASDAQ indexes also moving upward.
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The consumer price index, the most-watched inflation measurement put out by the U.S. government, declined slightly to 3.4% on a 12-month basis in April as price growth in the economy remained elevated.

Compared with March, prices climbed 0.3%, with rent and gasoline contributing 70% of the monthly increase, according to the Bureau of Labor Statistics. That was down from the 0.4% increase seen from February to March.

Stocks responded positively to the news, with the S&P 500 hitting an all-time high and the Dow Jones and NASDAQ indexes also moving upward.

Indeed, some silver linings exist within the data that signal consumers are experiencing some relief in certain categories.

The latest data "means the disinflationary process is back on track," Adam Crisafulli, a market analyst and head of Vital Knowledge Media, said in a note to clients following Wednesday morning's report. "Meanwhile, rent is still running quite hot, which means non-rent prices are easing even more than it seems on the headline.”

Among the broadest categories tracked by the consumer price index, two of the ones most acutely felt by consumers — food and energy prices — hit 2.2% and 2.6% on a 12-month basis in March, respectively.

That's essentially in line with the Federal Reserve's 2% goal.

Within those categories, food at home — essentially, groceries — climbed just 1.1%, while gasoline prices climbed 1.2%.

On a monthly basis, food-at-home prices declined 0.2%, and overall food-price growth was flat.

"Food is a notable bright spot," Neil Dutta, head of economic research at Renaissance Macro Research, said in an interview ahead of Wednesday's report.

In spite of those positive trends, progress in reducing overall costs has stalled. Economists generally agree it’s mostly because the cost of rent has remained elevated, though there remains disagreement about how soon slowing rent growth will start to appear in the index.

Even as the Fed and other economists have preached patience, the upshot has been an index that has remained stuck from 3% to 4%, above the Fed’s 2% target, for more than a year.

Still, price trends in a host of categories within the index are providing relief to people.

For instance, gas price growth is being held at bay in part, thanks to booming U.S. production, Dutta said.

"Do consumers think gas prices are good? No," he said. "But they're also not getting any worse."

Meanwhile, car prices have begun to decline year on year, with new cars averaging about $47,000, down 1% from last year and down 5.4% from the post-pandemic peak of December 2022. Used cars now average about $26,000, according to Kelley Blue Book, down 4% from a year ago and off 7% from the 2022 peak.

Alongside those declines, overall automobile affordability has significantly improved. The number of weeks of income needed to afford a new light vehicle hit an all-time high in the winter of 2022, as measured by Cox Automotive/Moody's Analytics.

The declines in car prices are emblematic of the broader drop in what are known as durable goods, said Eric Wallerstein, chief markets strategist at Yardeni Research.

"Everyone bought durables during the pandemic, but there only so many household appliances you can buy," he said.

Prices have been flat or falling in other significant categories and items over the past year:

  • Apparel: 1.3%
  • Cheese: -3.3%
  • Milk: -1.2%
  • Fish and seafood: -2.1%
  • Household furnishings and supplies: -2.8%
  • Smartphones: -9.8%

Despite those improvements, costs in the so-called services category — everything from haircuts to auto repair to visits to the doctor, as well as products like insurance — have continued to grow alongside rents.

Those other trends have put a damper on the overall consumer mood. The University of Michigan's most recent survey of consumer sentiment fell to its lowest reading in about six months, with concerns that inflation, unemployment and interest rates may all be moving in an unfavorable direction in the year ahead.

Another measure of consumer confidence, released by the Conference Board business group, also recently fell to its lowest level since July 2022.

In fact, inflation-adjusted incomes have, in the aggregate, continued to grow, though the growth has slowed this year.

"It really is an income-driven cycle, and income-driven cycles can last a long time," Wallerstein said.

But many economists agree that consumers are still adjusting to the post-pandemic price environment. Tracy Bell, chief investment officer at First Horizon Advisors, said prices in most cases won’t be returning to pre-pandemic levels as a result of the lingering effects of supply-chain disruptions and other more structural changes in recent years.

“If you look at food, prices for things like fertilizer, equipment, transportation, labor — all of that has gone up,” she said. “If you think about the chain of events that it takes to get food from the fields to the grocery shelves, all those costs along the way have increased, and all that goes into price.”