As expected, the CPI rose 0.4 percent in April after edging up 0.1 percent in March. But the 12-month growth rate came sightly down to 4.9 percent from 5.0 percent, the lowest level since April 2021. Econoday's consensus had the 12-month rate at 5.0 percent, with forecasts ranging from 4.8 percent to 5.1 percent. The core CPI, excluding food and energy, also rose 0.4 percent on the month. It was up 5.5 percent year-over-year, down from 5.6 percent the previous month, in line with expectations. Food prices were flat for the second consecutive month, bringing down the 12-month rate to 7.7 percent from 8.5 percent, the smallest increase since January 2022. Energy prices rebounded 0.6 percent on the month but fell 5.1 percent from a year earlier.

The monthly increase was largely due to a 0.4 percent rise in shelter, although this marked a slowdown from 0.6 percent in March and 0.8 percent in February. Used cars and trucks, motor vehicle insurance, recreation, household furnishings and operations, and personal care also drove the core index higher in April. On the other hand, prices for airline fares and new vehicles declined.

A substantial plus in April's report is noticeable improvement in the year-over-year rate in services less rent of shelter, a reading that tracks the Federal Reserve's focus on non-housing services inflation. This reading slowed from 6.1 percent to 5.2 percent, still highly elevated but the least elevated since March last year. This should ease, at least for now, concern or even regret among policy makers that they didn't raise rates at the recent FOMC earlier this month.

With annual rates overall, for the core and especially non-housing services all slowing, today's report brings some relief, especially with Econoday's Consensus Divergence Index at zero and signaling stable monetary policy. That being said, 0.4 percent monthly rates are still elevated and even if expected, will keep the Fed on its guard, showing that upward pressures are still being felt.

Core prices in April are expected to hold steady at a monthly increase of 0.4 percent to match March's as-expected an elevated increase of 0.4 percent. Overall prices are also expected to rise 0.4 percent after March's percent 0.1 increase which was below expectations. Annual rates, which in March were 5.0 percent overall and 5.6 percent for the core, are expected at 5.0 and 5.5 percent, in other words showing little or no improvement.

The CPI is a measure of the change in the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation for the consumer. Annual inflation is also closely watched.

The consumer price index is available nationally by expenditure category and by commodity and service group for all urban consumers (CPI-U) and wage earners (CPI-W). All urban consumers are a more inclusive group. The CPI-U is the more widely quoted of the two, although cost-of-living contracts for unions and Social Security benefits are usually tied to the CPI-W, because it has a longer history. Monthly variations between the two are slight.

The CPI is also available by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for many metropolitan areas. The regional and city CPIs are often used in local contracts.

The Bureau of Labor Statistics also produces a chain-weighted index called the Chained CPI. This measures a variable basket of goods and services whereas the regular CPI-U and CPI-W measure a fixed basket of goods and services. The Chained CPI is similar to the personal consumption expenditure price index that is closely monitored by the Federal Reserve Board.

The consumer price index is the most widely followed monthly indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact.

Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments.

If someone borrows $100 dollars from you today and promises to repay it in one year with interest, how much interest should you charge? The answer depends largely on inflation as you know the $100 will not be able to buy the same amount of goods and services a year from now. The CPI tells us that prices rose 4.2 percent in the U.S. over 2007. To recoup your purchasing power, you would have to charge 4.2 percent interest. You might want to add one or two percentage points to cover default and other risks, but inflation remains the key factor behind the interest rate you charge.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.