U.S. CPI Rises 3.8% in April, Fastest Since May 2023

The Labor Department reported that the U.S. consumer price index rose 3.8% year over year in April, the fastest annual pace since May 2023. Core CPI, which excludes food and energy, increased 2.8% year over year. Headline CPI rose 0.3% from March to April.

Core CPI exceeded the market consensus of 2.7%. The 0.3% monthly gain was the largest single-month increase since June 2022. Headline inflation last matched similar annual levels in May 2023, when CPI was 4%.

Services inflation and shelter costs were the main contributors to the April increase. Shelter, a large component of the services category, added to the rise in the index. Energy was not the primary driver in April, though energy price volatility could affect future readings.

The Federal Reserve’s long-run inflation target is 2%. Core inflation remains above that level. Markets had been pricing the possibility of interest-rate cuts later this year.

Higher interest rates increase the opportunity cost of holding assets that do not pay interest, a factor that affects risk assets. In 2022, when CPI prints were high and the Fed was raising rates, bitcoin declined from its highs and risk markets experienced weakness. Since then, the market structure for bitcoin has changed: the introduction of spot bitcoin exchange-traded funds created a new source of demand and the recent bitcoin halving reduced the rate of new supply issuance.

Economists and investors will watch upcoming monthly CPI reports and labor market data for signs of cooling in services and shelter, which would be needed for inflation to move closer to the Fed’s 2% target.