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Wednesday's April consumer price index report provided welcome relief that inflation is not heating up again.
But services inflation, the most tenacious component of the index, once again proved to be the most stubborn force of resistance.
As this week's charts show, price growth for core goods, food and energy has slowed and even gone negative. However, core services, which include other categories such as housing and healthcare, rose 3.15% year-on-year.
The figure is slower than March's 3.18%, but higher than readings in December, January and February that gave economists pause about whether inflation was actually trending down.
Of course, the main core service issue remains housing. Shelter costs rose 5.5% in April from a year earlier, accounting for two-thirds of the rise in core inflation. Combined, shelter and utility costs accounted for more than 70% of his price increases last month.
As Bank of America economist Michael Geipen wrote in a note Friday, the services sector may also be receiving some of the spending drained from goods. Wage growth remains strong as the labor market continues to expand and demand remains strong.
Still, Bank of America believes services and shelters will cool as the year progresses.
“We expect services inflation to moderate further as the year progresses, as shelter demand eases further in August and moderate growth in economic activity weighs on services inflation for the remainder of the year,” Gapen said. wrote.
But the last thing the Fed wants is a “mission accomplished'' moment in which an aircraft carrier achieves a false victory, as it feels as though it has already miscalculated the severity of the inflation problem.
And as the man said, “Fool me once.”
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