Intelligent Investment
Economic Watch: Inflation Cools Slightly in April
May 15, 2024 3 Minute Read
Executive Summary
- The Consumer Price Index (CPI) increased by 0.3% in April and 3.4% year-over-year vs. respective expectations of 0.4% and 3.4%. While still high, the monthly and year-over-year rates eased slightly from 0.4% and 3.5%, respectively, in March.
- Shelter and gasoline accounted for 70% of the increase in the headline index.
- Core inflation, which excludes food and energy prices, met expectations with increases of 0.3% for the month and 3.6% over the past year.
- April’s cooler CPI supports the Federal Reserve’s expectation that inflation will continue to decrease.
- We expect capital markets activity will remain somewhat subdued in Q2 but will improve later in the year.
The Bottom Line
Core inflation in April was the lowest since April 2021. This, combined with slower job growth in April, indicates that tighter monetary policy is having the effect that the Fed desires. We think this keeps the possibility of a July rate cut on the table, but the Fed will proceed cautiously as inflation remains well above target.
We expect bond markets will continue to experience bouts of volatility until it becomes clearer that the Fed will be able to cut short-term rates. This should allow the 10-year Treasury yield to decrease, ending the year at 4.1%. Less volatility and lower bond yields should support increased commercial real estate investment activity later in the year. We expect that economic growth will remain healthy over the near term, which will continue buoy leasing activity.
Figure 1: CBRE House View
