As the world's largest economy, the United States' inflation data consistently garners global financial market attention. The April 2024 CPI data is crucial not only for the trajectory of U.S. domestic economic policy but also for its profound impact on the global economy.

Overview of the Current U.S. Inflation Situation
Despite a series of interest rate hikes by the Federal Reserve, inflation remains stubbornly high. Analysis indicates that in March 2024, the U.S. CPI index increased by 3.48% year-over-year, while the core CPI index rose by 3.8% year-over-year, suggesting a rebound in the inflation rate from the previous two months, with a slight uptick in core inflation. The primary drivers of CPI growth were the rising housing and gasoline prices, with the housing index up by 5.65% year-over-year and 0.42% month-over-month, and gasoline prices also showing an increase.

Additionally, consumer expectations for short-term inflation have remained stable, but medium-term inflation expectations have risen. From the perspective of the labor market, the U.S. job market has performed strongly, with an increase in nonfarm payroll employment, a slight rise in labor force participation, a decline in the unemployment rate, and an uptick in wage growth. These factors collectively have strengthened market expectations for future rate cuts by the Federal Reserve. However, it is expected that the Federal Reserve will maintain a wait-and-see approach in the short term, keeping the federal funds rate between 5.25% and 5.50%.

The first quarter GDP growth rate of the U.S. was 1.6%, indicating a slowdown in economic growth. Meanwhile, U.S. long-term bonds have significantly depreciated, and the yield curve inversion has persisted, typically seen as a precursor to economic recession. Nonetheless, the U.S. economy currently shows some resilience, suggesting that the likelihood of an imminent recession is not high.

In summary, the current U.S. inflation situation indicates that the inflation rate remains elevated, economic growth is slowing, but the job market remains strong. This combination of factors adds complexity to the Federal Reserve's policy decisions.

Year-over-Year Change in U.S. Overall Inflation Rate (Blue Line; Left Axis) and WTI Crude Oil Price Year-over-Year Change (Green Line; Right Axis)
Source: Federal Reserve Bank of St. Louis

Expectations for Declining Housing Costs
Federal Reserve Chair Jerome Powell recently indicated that a potential decrease in housing costs could reduce core inflation in the future. Analysts at Standard Chartered Bank also believe that, based on regression analysis, the housing inflation indicator OER in the CPI will sharply decline in the coming months, which may lead to a downward trend in core inflation.

Housing costs play a significant role in inflation, accounting for one-third of the CPI and about one-sixth of the PCE. Powell has stated that he expects declining rent costs to eventually be reflected in broader price data, allowing policymakers to cut interest rates at some point. However, some analysts worry that due to dynamic changes in the real estate market, the anticipated slowdown in housing costs may not materialize, potentially weakening the case for rate cuts.

Additionally, a New York Fed survey shows that respondents expect the median home price to rise by 3.3% next year, up 0.3 percentage points from the level maintained over the past seven months. This indicates that the market is not optimistic about a decrease in housing costs, and rising housing cost expectations could exacerbate inflationary pressures, impacting the Fed's tightening policies.

The expectation of declining housing costs is a crucial consideration for the Fed's rate cut decisions. However, market surveys indicating anticipated increases in home prices suggest that the expectation of declining housing costs is unstable and uncertain.

April CPI Forecast and Market Expectations
The market generally expects that the U.S. April CPI growth rate might be lower than anticipated, potentially providing a "cooling surprise" to the market. If the April CPI data shows signs of inflation easing, it will support market expectations for Fed rate cuts, positively influencing global macroeconomic sentiment.

Federal Reserve Policy Outlook
The Fed's policy direction in 2024 will largely depend on inflation data performance. Currently, the Fed is in a wait-and-see mode, and it is expected to maintain the federal funds rate at 5.25% to 5.50% during the April meeting. If inflation remains high, the Fed may continue its tightening policy. Conversely, if inflation is effectively controlled, there will be room for rate cuts.

The upcoming release of the U.S. April CPI data will undoubtedly be a key factor influencing financial market sentiment and Fed policy decisions. Expectations for declining housing costs, market hopes for easing inflation, and the Fed's policy outlook are all crucial factors in current economic analysis. As the data is gradually released, global investors will closely monitor every move in U.S. inflation to make corresponding investment decisions.

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