Benign Consumer Inflation Read Triggers Rally

The U.S. saw a slight easing in inflation for April, according to the government’s Consumer Price Index (CPI). The CPI rose by 0.3%, down from 0.4% in March and below economists’ forecasts of 0.4%.

Other elements of the report also indicated small declines in line with expectations. Year-over-year, the CPI increased by 3.4%, matching estimates and slightly down from 3.5% in March. Core CPI, which excludes food and energy costs, rose by 0.3% in April, meeting expectations and down from 0.4% in March. On a year-over-year basis, core CPI rose by 3.6%, aligning with forecasts but down from 3.8% in March.

Following the release of this report on Wednesday morning, the price of Bitcoin jumped more than 1%, reaching $63,700. Bitcoin’s price had been under pressure due to concerns that interest rates would remain high for longer, especially with the recent slowdown or reversal in inflows from spot ETFs.

The consistent decline in inflation throughout 2023 led many, including the U.S. Federal Reserve, to anticipate easier monetary policy in 2024. However, inflation has risen slightly this year, coupled with an economy that continues to grow. This has diminished the likelihood of imminent central bank rate cuts. Before the CPI report, the odds of a summer rate cut by the Fed were low, with traders pricing in just a 50% chance of a move in September, according to the CME FedWatch Tool.

In conjunction with the inflation numbers, retail sales data for April was released, showing a flat reading against forecasts for a 0.4% rise and March’s 0.6% increase. Retail sales excluding autos rose by 0.2% in April, matching expectations but down from 0.9% in March.

Traditional markets reacted positively to the soft inflation and economic data. S&P 500 futures rose by 0.5%, the 10-year Treasury yield dropped seven basis points to 4.37%, the U.S. dollar index fell by 0.5%, and gold gained 0.7%.