April CPI may not be enough to excite Fed: Economist

Economic data is flooding the markets on Wednesday morning, presenting a mixed picture for investors. The highly anticipated Consumer Price Index (CPI) data arrived in line with expectations, while the April retail sales report remained flat, hinting at potential headwinds for consumer spending.

Bank of America Securities US Economist Stephen Juneau joins the Morning Brief to provide insights into the implications of this economic data.

Juneau views the inflation data as “a step in the right direction” for the economy, but he questions whether it is “really enough for the Fed to get really excited about.” However, he notes that the flat retail sales report could suggest that the Federal Reserve’s monetary policy has entered “restrictive territory,” although he acknowledges that “on average, the consumer is still in good shape.”

“We do think we’re in this year where the last mile is just that much harder than what we saw last year,” Juneau tells Yahoo Finance, adding, “It’s more and more about services inflation, and that’s going to take some time to bring down.”

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Angel Smith

Video Transcript

Let’s talk about this move higher that we are seeing here because futures are moving to the upside CP I print coming in in line with expectations.

The data coming after another report pointed to stickier inflation.

That was PP I out yesterday for April, it rose at a half of a percent, which is more than we had expected.

So let’s talk about what this means for the path forward for that.

We wanna bring in Steven Juno Bank of America Securities us, economist Steven, it’s good to see you here.

So when you take a look at this print that we got in CP I, that was essentially very close to consensus.

We had a weaker than expected retail sales print.

I’m curious what your first takes are at these two prints and what it ultimately tells us about the state of the economy right now.

Well, I think uh your, your previous panel summarized it perfectly.

You know, it’s a step in the right direction.

We’ve seen a step down in inflation from the first quarter.

That was a very kind of ugly.

First quarter, we saw a torrid pace of inflation growth, but now we get kind of this step down.

But is it really enough for the fed to get too excited about?

Probably not yet, but it is kind of confirmation that one Q was maybe a little bit anomalous, a little bit statistic noise.

We do think January was boosted for some statistical regions, uh reasons rather.

And now maybe you’re seeing a bit of a slowdown, then you layer on top is the fed in restrictive territory.

Well, retail sales at least tells you that maybe they are starting to see that more and more.

Now, this is just really capturing the good side of the economy.

It also probably reflects a lot of payback from a very strong print last month because you did see non store retailers pull back after a very strong March.

So maybe a little bit of payback there.

You kind of want to look and smooth through the monthly profile there and see that on, on average, you know, the consumer is still in good shape, we’re still spending.

But are we starting to see durable, good spending maybe pull back a little bit because of higher rates?

I think maybe you’re starting to see a little bit more evidence and the FED can be a little bit more confident they’re in uh restrictive territory when looking at retail sales and they can be a little bit more confident that inflation isn’t running away from them when they look at the CP I data.

Yes, Steve and one of the things that came up in our panel just a few minutes ago was when we could see a plateau in inflation.

And one of the comments that we received was over the summer, we could see that from your estimation.

Does this data kind of point us in that direction?

And, and what would you be looking for?

So we are, I mean, broadly speaking, when we look at the fed’s preferred measure of inflation, so PC inflation, we’re forecasting progress on a sequential basis.

So that one Q data isn’t, is going to look a little bit outside the broader scheme, we’re going to get better data moving forward.

But when you look at the year over year rate because of unfavorable base effects, but we think PC inflation is really going to stagnate this year kind of across the board.

So we have PC inflation ending the year of the CO PC inflation ending the year at 2.9% which is roughly unchanged from the end of last year.

So we do think we’re in this year where the last mile is just that much harder than what we saw last year.

It’s more and more about services inflation and that’s going to take some time to bring down some of that is due to housing just being sticky, being inertial.

But we have seen progress there.

It’s just a matter about when not if that comes down because market rents have certainly normalized.