The SPDR S&P 500 ETF Trust SPY (NYSE: NYSE:SPY) traded lower by 0.6% on Wednesday morning after the Labor Department reported an 8.3% increase in the consumer price index in the month, indicating inflation remains near 40-year highs.
What Happened: The headline CPI rose 8.3% in April, down slightly from 8.5% in March but above economist estimates of 8.1%. Prior to 2022, the CPI hadn't risen 8.3% in any month since 1982.
Core inflation, which excludes volatile food and energy prices, was up 6.2% in April, above economist estimates of a 6% gain.
Food prices were up 0.9% month-over-month and 9.4% compared to a year ago. Energy prices were down 2.7% in April but up 30.3% over the past 12 months. Used car prices dropped 0.4% on a monthly basis but remain up 22.7% from a year ago.
The latest CPI inflation reading comes after the Labor Department reported earlier this month that U.S. wages grew 5.5% year-over-year in April. Unfortunately, the latest inflation numbers suggest prices are rising faster than wages for many Americans.
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Voices From The Street: Jeffrey Roach, Chief Economist for LPL Financial, said the first month-over-month drop in CPI inflation may be an important psychological turning point for consumers.
"April data will not likely change expectations that the Federal Open Market Committee (FOMC) will hike by 50 basis points at their next meeting on June 14-15," Roach said.
Bill Adams, Chief Economist for Comerica Bank, said the CPI slowdown was driven by falling gasoline and used car prices, but inflation is likely to continue to overshoot the Federal Reserve's target range through the end of 2023.
"But sticky services prices continued to rise rapidly in April, evidence that inflation’s momentum is still strong," Adams said.
Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance, said the April inflation numbers were disappointing, removing a potential catalyst for a stock market rally.
"There will be at least four 50 bps rate hikes this year and not three or less, and we would continue to be cautious with risk assets," Zaccarelli said.
Joseph Brusuelas, principal and chief economist for RSM US LLP, said peak inflation doesn't provide much comfort to American consumers.
"While inflation in this business cycle likely reached its zenith in March as transportation prices and other industrial goods declined relative to year ago levels resulting in an easing of topline inflation from 8.5% last month to 8.1% in April, one does not get the sense that this is going provide any relief to households experiencing a loss in purchasing power and policymakers who will attempt to restore price stability without causing a recession," Brusuelas said.
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