Disinflation Stalls in April - A Small Bump On the Road As Rent Inflation Ticks Down

What happened: The Consumer Price Index (CPI) rose 0.4% in April after increasing 0.1% in March. Core CPI rose 0.4% month-over-month, as it did in March.

What it means: While annual price growth continues to slow, inflation remains far above the Fed's target. What's more, April's monthly growth was less than expected, but still strong in the grand scheme of things, meaning that the Fed is unlikely to view this report as grounds for taking their foot off the economic brake.

What Zillow Senior Economist Orphe Divounguy thinks: Today’s report was a bump on the road toward lower inflation. Although the pace of consumer price increases is slowing, a temporary increase in gas prices and pent-up demand for used cars prevented further disinflation in April. However, rent of primary residence and owners’ equivalent rent of residences - which make up the largest components of core CPI - have continued to edge lower.  

Despite the deceleration, shelter costs remained the largest contributor to the Core CPI monthly gain, but relief should be on the horizon. Annual growth of the Zillow Observed Rental Index (or ZORI) – a measure of market rent – has fallen to 5.3% from its 16.9 % high in February 2022. While this is welcomed news to renters struggling to afford rent, it also means that CPI Rent – and core CPI overall – should moderate further as the year progresses.

Rent inflation tends to respond more to a tight labor market than do other components of the Consumer Price Index (CPI). As the labor market continues to cool, rent inflation should continue to fall further. For that reason, longer term Treasury yields - which mortgage rates tend to follow - fell on the news.

Numbers to know: 

• The Consumer Price Index (CPI) increased 0.4% in April after increasing 0.1% in March. Consumer prices were 4.9% higher when compared to a year ago down from 5.0% in March.
• Core CPI increased 0.4% in April and is now up 5.5% from a year ago up from 5.6% in March.
• The shelter component of CPI led the price gains in April. However, shelter costs continued to fall as predicted by the past year’s slowdown in ZORI.