Inflation slowed in April for the first time in 8 months

• The Consumer Price Index rose 8.3% in the year through April, the government said Tuesday.
• Economists surveyed by Bloomberg expected the measure to climb 8.1% year-over-year.

For the first time in nearly a year, US inflation has cooled down.

The Consumer Price Index — a closely watched measure of nationwide price growth — climbed 8.3% in the year through April, the Bureau of Labor Statistics announced Wednesday. Economists surveyed by Bloomberg expected the gauge to rise by 8.1%. The print reflects a slowdown from the 8.5% pace seen through March and the first deceleration of the year-over-year measure since August.

The report offers the first concrete signs that the US could be past peak pandemic-era inflation. Price growth became the biggest problem facing the economic recovery early in 2022 as the Omicron wave faded and Americans' spending ripped higher. Russia's invasion of Ukraine only worsened the problem, as the war and related sanctions lifted the prices of food, gasoline, and other key commodities.

The Wednesday release suggests the worst is over. A handful of other signs, from falling shipping rates to easing inflation expectations, flashed similar signals in recent weeks. Yet the CPI report is among the most holistic inflation trackers, and the drop hints the pressures lifting prices sharply higher are starting to reverse course.

The measure's month-over-month print also flashed an encouraging signal. The price index rose just 0.3% through April, slowing markedly from the 1.2% pace seen in March and marking the smallest one-month increase since August. The month-over-month reading is typically regarded as a more accurate measure of current inflation dynamics, as it isn't influenced by where prices sat one year ago. The dramatic slowdown in one-month inflation suggests the underlying trends pushing prices higher reversed course in April.

To be sure, the 8.3% pace is still well above the Federal Reserve's target for 2% price growth. The economy might be on the mend, but it will likely take until 2023 for inflation to reach more sustainable levels.

"The peak of inflation may be behind us, but today's CPI report points to a long, slow descent or maybe even a plateau around 8% until prices start to drop significantly," Robert Frick, an economist at Navy Federal Credit Union, said.

Where inflation cooled the most

The bulk of the slowdown was powered by declining energy prices. The group saw prices broadly dive 2.7%, led by a 6.1% decline in gasoline costs. Prices of used vehicles and apparel also fell slightly in April.

Transportation services and utility gas services posted the largest price jumps through the month, with each category posting a 3.1% increase. New cars followed with a 1.3% jump, and grocery prices broadly rose 1%, according to the report.

The core CPI gauge, which excludes volatile food and energy prices, rose 6.2% year-over-year, slowing from the 6.4% pace seen in the year through March. The core measure also rose 0.6% in April alone, reflecting a sizeable acceleration from the 0.3% uptick seen the month prior. Core inflation is generally viewed as a more reliable indicator for factors lifting overall inflation, as it strips out many sudden and temporary price changes. The latest print hints that, while headline inflation eased slightly, there are still several dynamics boosting price growth throughout the economy.

There are signs the next CPI reports will continue to show inflation cooling. The Fed raised its benchmark interest rate by 0.5 percentage points in early May, doubling the size of its typical rate hikes. Higher rates lift borrowing costs for mortgages, car loans, and other kinds of debt. That tends to weaken overall demand and, in turn, slow the pace of inflation. The May rate hike will likely be the first of many double-sized increases as the central bank adopts a more aggressive strategy for taming inflation, and the next several CPI prints will be the first to show the effects that higher interest rates will have on surging prices.