US consumer prices increased less than expected in April, signalling a potential resumption of the downward trend in inflation at the start of the second quarter. This development boosts financial market expectations for a possible interest rate cut by the Federal Reserve in September.

According to the Labour Department's Bureau of Labour Statistics (BLS), the consumer price index (CPI) rose by 0.3 per cent in April, following a 0.4 per cent increase in March and February. Over the 12 months through April, the CPI rose by 3.4 per cent, down slightly from a 3.5 per cent increase in March. Economists polled by Reuters had predicted a 0.4 per cent monthly rise and a 3.4 per cent year-on-year gain.

The annual increase in consumer prices has significantly declined from a peak of 9.1 per cent in June 2022. However, progress has been uneven, with inflation accelerating in the first quarter of this year due to strong domestic demand after moderating throughout much of last year.

April's slowdown in inflation was a welcome relief, especially after data showed a jump in producer prices earlier in the week. Economists attribute current inflation pressures to service providers, such as those in motor vehicle insurance, housing, and healthcare, who are adjusting to higher costs.

Looking ahead, economists expect inflationary pressures to ease this quarter, with prices gradually moving toward the Federal Reserve's 2 per cent target, particularly as the labour market cools. Fed Chair Jerome Powell echoed this sentiment, stating, "I expect that inflation will move back down on a monthly basis to levels that were more like the lower readings we were having last year."

Financial markets are increasingly anticipating that the US central bank will start reducing borrowing costs in September. While some economists predict the Fed may begin its easing cycle as early as July, others believe a rate cut might not occur until December, if at all.

Earlier this month, the Federal Reserve left its benchmark overnight interest rate unchanged in the current 5.25 per cent-5.50 per cent range, where it has remained since July. Since March 2022, the Fed has raised its policy rate by 525 basis points.

Excluding the volatile food and energy components, the core CPI rose by 0.3 per cent in April, following a 0.4 per cent increase in March. Over the past 12 months, the core CPI increased by 3.6 per cent, marking the smallest year-on-year gain since April 2021, down from a 3.8 per cent rise in March.

(With Reuters inputs)