Analysis of U.S. April CPI Report: Inflation Hits Three-Year High, Core Inflation Exceeds Expectations, But Secondary Transmission Risks Have Not Appeared.

Core CPI data, which excludes food and energy prices, exceeded market expectations across the board. This indicates that the pass-through effect of the current rise in oil prices into core inflation is gradually manifesting, though a detailed analysis is still required to identify which specific sub-items are driving this.

Looking specifically at the "oil price pass-through issue" that is currently the market's primary concern, core services inflation saw a slight uptick in the shelter component due to last year's government shutdown, while core goods inflation cooled.

Regarding sticky inflation, the airfare component within core services—the most sensitive to oil prices—grew 2.8% month-on-month, a slight increase from the previous month's 2.7%. Reportedly, against the backdrop of surging jet fuel costs, airlines including Delta Air Lines (DAL) and United Airlines Holdings (UAL) have raised fares and baggage fees.

It is particularly noteworthy that the shelter component increased by 0.6% month-on-month, roughly doubling the previous growth rate. Within this, the rent and owners' equivalent rent components rose by 0.3 and 0.2 percentage points, respectively, to 0.5%.

This was primarily due to the dissipation, after six months, of the underestimation effect on rent inflation caused by the carry-forward imputation method used during last year's federal government shutdown.

When calculating the month-on-month conversion factor for the shelter component in April, the Bureau of Labor Statistics (BLS) used one-sixth of the year-on-year change from the April sample, leading to a significant month-on-month rebound in the April shelter component. This is essentially a result of statistical methodology—resembling a "seasonal" distortion rather than a persistent trend.

Regarding semi-sticky inflation, core goods inflation continued to perform moderately. Inflation in new and used cars remained subdued, as the impact of tariffs continues to fade. Among goods with high import shares, growth in furniture and apparel fell to -0.5% and 0.64% respectively, indicating that the impact of tariffs has dissipated, while used car prices recorded zero growth month-on-month.

Nick Timiraos, often referred to as the "Fed's mouthpiece," commented on the U.S. CPI data, stating that the optimistic narrative on inflation has been that recent price increases were driven by tariffs (manifesting in goods) and would therefore not persist, as tariffs do not continue to rise year after year. Based on the April CPI data alone, this narrative does not hold up.

Overall, the April CPI report indicates that oil prices are keeping headline inflation high, the shelter component of core services is seeing significant month-over-month growth, and no other clear second-round inflation effects have emerged. High inflation continues to erode the real purchasing power of American households, while low-income families face more intense cost shocks, which was also mentioned in the previous text regarding the dual effect of rising oil prices: to what extent the inhibitory effect of high oil prices on terminal demand can counter their upward pressure on inflation.

Although the market priced in no Fed rate cuts for the remainder of the year after the CPI report was released, and the probability of a December rate hike rose slightly to 30%, this uptick in core inflation is not expected to be sustainable. Core inflation is likely to remain volatile rather than continue trending upward. The probability of 'second-round inflation risks' remains low, and there is currently no substantive evidence to support a Fed pivot toward rate hikes.

The market is also more inclined to interpret the report as a very mild dovish signal. Against this backdrop, the Federal Reserve is highly likely to continue its wait-and-see approach, keeping interest rates unchanged in the short term.

According to the CME FedWatch Tool: the probability of the Fed keeping rates unchanged in June is 97.1% (97.6% prior to the release), with a 2.9% probability of a cumulative 25-basis-point rate cut. The probability of the Fed keeping rates unchanged in July is 96% (95.6% prior to the release), with a 3.9% probability of a cumulative 25-basis-point rate cut. The probability of a 25-basis-point hike by December is 29.9%.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.