May 10, 2023
The disinflation process continues, although employment remains strong
The consumer price index accelerated 0.4% monthly in April from 0.1% in March. This figure was in line with what the consensus was expecting, and at the same time allowed a slight reduction in inflation in annual terms, reaching a rate of 4.9% (vs. 5.0% in March and 5.0% expected). For its part, the index that excludes food and energy, that is, core inflation (core CPI) rose 0.4%, in line with what was expected by the consensus and in line with the variation registered in March. With this, the annual change was 5.5% (vs. 5.6% in March and 5.5% estimated).
In detail, the shelter component advanced 0.4% in the month (+8.1% annually), which represented more than 60% of the total increase in all items excluding food and energy. Also notable was the 4.4% increase in the month (-6.6% annually) registered by used cars and trucks, as well as gasoline, with an increase in the month of 3% (-12.2% annually). As far as food is concerned, positively the food component remained unchanged during the month, as it was in March. In particular, food at home fell 0.2% in the month (+7.1% annually), while the component of food outside the home climbed 0.4% (+8.6% annually). Finally, air fares, new vehicles, transportation services, and medical services registered setbacks in the month.
On the other hand, in recent days the employment figures for April were published, which were positive in general terms. The nonfarm payroll registered the creation of 253,000 jobs and exceeded the expectation of 185,000. In addition, the unemployment rate descended to 3.4% and average hourly compensation increased 0.5% per month (+4.4% annually), which represented its steepest increase in just over a year.
After the 25bp increase that the Fed implemented at the beginning of the month and with this mix of results in inflation and employment, the market has begun to assign a greater probability of seeing a pause in the upward cycle as soon as June. Similarly, it begins to reflect the possibility of seeing cutbacks in the reference rate towards the end of the year of around 75bp. However, we notice that this scenario faces certain challenges, because the 2% inflation target still seems far away, in the midst of a robust labor market, with an unemployment rate at its lowest in the last 50 years. In addition, there are situations that could generate volatility, such as the crisis of the regional banks, and of very short-term, the negotiations on the debt ceiling.