NEW YORK U.S. consumer prices increased in April on higher gasoline costs and rents, while underlying inflation remained strong as used motor vehicle prices rebounded, potentially ensuring that the Federal Reserve keeps interest rates elevated for a while.

The Consumer Price Index (CPI) rose 0.4% last month after gaining 0.1% in March, the Labor Department said on Wednesday. In the 12 months through April, the CPI increased 4.9% after advancing 5.0% on a year-on-year basis in March.

MARKET REACTION:

STOCKS: U.S. stock index futures turned 0.8% higher, pointing to a strong open on Wall Street BONDS: U.S. Treasury yields fell, with 2-year note last at 3.956%, and the 10-year note down at 3.4653%FOREX: The euro turned 0.4% higher against the U.S. dollar, while the dollar index was off 0.4%

COMMENTS:

ANDREW HUNTER, DEPUTY CHIEF US ECONOMIST, CAPITAL ECONOMICS, LONDON

“The 0.4% m/m gains in headline and core consumer prices in April leaves core inflation at 5.5%, broadly unchanged from its level at the start of this year, further illustrating that the previous downward trend has stalled. We don’t think that will in itself be enough to convince the Fed to hike again at the June FOMC meeting, but it does suggest a risk that rates will need to remain high for a little longer than we have assumed.”

TOM HOPKINS, PORTFOLIO MANAGER, BRI WEALTH MANAGEMENT, LONDON

“Today’s print has been highly anticipated by financial markets as investors try to gauge what this reading will mean for the outlook of interest rates. Markets have been betting hard on there being a pause in interest rates rises over the summer months, but the Federal Reserve continues to hold that door open for more rises. Ahead of this reading Fed President John Williams warned that they were not done raising rates. Markets need to slowly wake up to the fact that the data is not cool enough, and the Fed is open to raise rates further.”

CAROL M. SCHLEIF, CHIEF INVESTMENT OFFICER, BMO FAMILY OFFICE, MINNEAPOLIS, MN

“The largely in-line report is clearly sending relief signals through markets. After last week’s strong jobs reports, the whisper had been fears the CPI might come in a bit hotter. Core inflation was a bit higher, though energy as the culprit has folks nodding understandably. Overall the print would seem to give the Fed room to keep its foot on the brakes at its next meeting in June”

“It’s important to remember that inflation’s comparison should be default (given the math of substantially higher prints in the first few quarters of last year) – taper in the next few periods”

KENNY POLCARI, CHIEF MARKET STRATEGIST AT SLATESTONE WEALTH, JUPITER FLORIDA

“The core came in right in line. The only thing that was any different was the CPI top line year over year that came in at 4.9%, which was below the 5% expectation. Everything else came in right where it was expected to come in.

"I don’t necessarily think it’s a blazing bullish report but it’s going to give some people the option to argue for a pause and a pivot from the Fed, which I don’t think is the case. I think the Fed will raise rates again in June and then pause. I don’t see a pivot in all of 2023.”

“Futures were up because it wasn’t a stronger number. Futures went from being nervous to now being bullish that the Fed is making progress and is not going to raise rates any more."

QUINCY KROSBY, CHIEF GLOBAL STRATEGIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA

"The market's immediate reaction was positive, both for Treasuries - I saw yields starting to come down - and equities -the futures started moving up. What's interesting is it was in line... But this was a net positive, especially because there were expectations that inflation would seem higher than the market would want. The market is applauding this report."

"There will be another CPI report before the Fed meets, and expectations are you will start to see the effect of rents easing."

LUKE TILLEY, CHIEF ECONOMIST, WILMINGTON TRUST, DELAWARE

"We continue to see improvement in inflation and I think there's a continuing lessening of concerns. ““We think that (the Fed is) done hiking rates. This data to me would support the idea that they do not need to hike going forward because we've seen a slowdown in inflation and I believe they will be cutting rates later in the year. If inflation continues to slow and the economy continues to slow and long-term inflation expectations are under control, there's absolutely no reason to have a Federal funds rate of 5%."

PRIYA MISRA, HEAD, GOBAL RATES STRATEGY, TD SECURITIES, NEW YORK

“It came in actually as expected, but I think there may have been people looking for a stronger number. So that’s why we had a decent reaction. The other thing is shelter, a huge component of CPI and it came in a little bit weaker."

“There’s a caveat, it came in weaker not because of rents, so it was weaker but if it had come in because of rents we would have said this is something that implies that inflation is heading lower. The market might be rejoicing here that inflation is on the way down, it is, but we think it's going to be a little bit sticky on the way down."

“When people parse through the details, it’s not across the board weak. It’s not and for the wrong reasons, the decline is driven by the volatility component. The market may give it back.”

ANDRE BAKHOS, MANAGING MEMBER, INGENIUM ANALYTICS LLC, PLAINSBORO, NEW JERSEY.

"It's not good enough for the market in the short term because it still leaves question marks as to what the Fed is going to do in the next meeting."

"It's not a number where the Fed could relax, therefore investors could have confidence this is still going to hang over the market's head and that coupled with a narrow leadership in equity markets in addition with the uncertainty around the debt ceiling is going to create some near-term consternation."

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN“April’s inflation numbers were spot-on with expectations. The tightening of the screws in the credit markets will likely only have a gradual effect on growth and inflation. Inflation is still too high, so the Fed’s narrative won’t likely change. They will stick with the story that they have no intention of cutting. Their opinions can change with the wind, and the data, though.”

(Compiled by the Global Finance & Markets Breaking News team)