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Fast Comment USCore CPI up 0.2 percent in April as expected

  1. Core CPI inflation remained at 2.3 percent in April
  2. Headline CPI inflation declined to 2.3 percent, from 2.7 percent in March
  3. Rising rental prices of housing remains an important factor
Core CPI up 0.2 percent in April as expected
The Core Consumer Price Index (excl. food and energy) increased m-o-m by 0.2 percent in April, which is the same percentage increase as in March. Consensus expected 0.2 percent. Headline CPI was unchanged in April, versus an increase m-o-m of 0.3 percent in March. Consensus expected the headline reading to be unchanged in April.
Core CPI inflation likely to hover above 2 percent
We believe that core CPI inflation will hover above 2 percent, despite an unemployment rate of 8.1 percent. Our interpretation is that large economic changes and a dysfunctional housing market have increased structural unemployment sharply. Several Fed officials have warned of a significant mismatch in the labour market, indicating that prevailing high unemployment might not be enough to prevent core inflation from rising. Moreover, housing rental prices are on the rise on the back of stronger demand for housing. Many households are remaining in their rental apartments despite rising rents, rather than purchasing a home. However, at present it seems as if the rise in rental prices for residential housing is moderating.
Projection of core CPI
In the graph below, we make a projection under the assumption that core CPI will change at the same pace as its average during the past six months. The projection in the graph below shows the rental prices of residential housing.