Summary

Two important inflation reports -- the Consumer Price Index and the Producer Price Index -- were released earlier this week and both signaled that pricing pressures are again easing. For now. Both reports indicated that overall pricing pressures remain well below the peak rates in the summer of 2022. But both also confirmed that inflation remains above the Fed's target of 2.0%, and that it may take a while to get to that level. Let's first take a deeper dive into the Consumer Price Index. The news here was good, as the annualized headline number ticked lower from the previous month (2.3% versus 2.4% and 3.0% three months ago). According to the latest CPI report, the core inflation rate (ex-food and energy) was steady at 2.8%. Once again, the most encouraging data was related to Transportation Services and Shelter costs. In these sticky categories, year-over-year inflation rates have declined meaningfully. Gas prices are also sharply lower year over year, which should please consumers. The other inflation report was the Producer Price Index. The PPI measures pricing trends farther up the supply chain, at the manufacturing level. Here, the news was also generally positive. For example, the PPI final demand annual rate through April was 2.4%, compared to 2.7% a month ago and 3.7% in January. Based on the fundamentals, we expect pricing pressures to continue easing as the housing market cools due to high mortgage rates, and