CICC's research report indicates that the US CPI rose by 0.6% month-on-month and 3.8% year-on-year in April, with the core CPI increasing by 0.4% month-on-month and 2.8% year-on-year. The energy component contributed over 40% of the overall monthly increase. Against the backdrop of ongoing disruptions in the Strait of Hormuz and persistently high international oil prices, the transmission of energy costs to the consumer end remains incomplete. Food prices have generally risen, and airfare has continued to climb, both likely driven by secondary effects of higher oil prices. Notably, the expansion of the AI industry is creating new structural inflationary pressures, with prices for electronic products and related components continuing to rise. Overall, the bank believes that persistent energy inflation pressure, combined with a stabilizing labor market, will lead the Federal Reserve to maintain its current stance in the near term, with the next potential rate cut possibly delayed until the fourth quarter.
Key points from CICC are as follows:
US CPI inflation rose further in April, primarily driven by continued increases in energy prices. The energy component rose by 3.8% month-on-month after seasonal adjustment. Although this is a significant slowdown from the 10.9% increase in the previous month, it still contributed over 40% of the overall monthly CPI increase. Given that US-Iran tensions have not substantially eased, commercial shipping in the Strait of Hormuz remains restricted, keeping international oil prices above $100 per barrel. Meanwhile, weekly high-frequency data shows that the average US gasoline price in early May further increased to $4.58 per gallon, up more than 50% from early 2026 levels. This indicates that energy cost pressures continue to transmit to consumer spending, with potential further upside risks ahead.
Food price increases were also significant. The food component rose by 0.5% month-on-month in April, with the food-at-home index up 0.7%. Prices for major categories such as meat, poultry, fish, eggs, fruits, vegetables, and non-alcoholic beverages all saw broad increases. Rising food prices are also partly driven by escalating energy costs. On one hand, ongoing disruptions in the Strait of Hormuz have tightened global crude oil and chemical supplies, potentially transmitting upstream cost pressures to agricultural products through prices of items like fertilizer. On the other hand, higher energy prices also increase food transportation and logistics costs, ultimately reflected in final consumer prices.
Core goods inflation remained generally moderate. However, chip and memory shortages triggered by the AI investment boom are driving sustained price increases for some electronic products. In April, prices for furniture and appliances (-0.5%), new vehicles (-0.2%), motor vehicle parts (-0.2%), and medical commodities (-0.4%) all declined month-on-month, while used car prices remained largely flat. This reflects consumers cutting back on some discretionary spending amid high energy costs. In contrast, the rapid expansion of AI-related demand continues to push up prices for electronic products. Affected by global memory supply tightness, some upstream costs have gradually transmitted to the end-user. Personal computer prices rose by 0.9% in April, following a 1.5% increase in the previous month, while software and related accessory prices recorded significant gains of 6.5%, 4.0%, and 5.0% over the past three months, respectively. This suggests the AI wave is creating new structural inflationary pressures. The supply-demand mismatch driven by AI may become a new variable pushing inflation higher in the future.
Rent increases rose noticeably, partly due to a "catch-up" effect following previous statistical data gaps. Rent rose by 0.6% month-on-month in April, significantly higher than the 0.3% increase in March, marking the largest monthly gain since 2024. Both primary residence rent and owners' equivalent rent (OER) increased by 0.5% month-on-month, also reaching highs since 2024. This "jump" is partly attributed to statistical anomalies from last year's government shutdown, more of a one-off factor. Looking at forward indicators for rent, no sustainable rent increase is currently evident.
Non-rent core services inflation edged up slightly, partly reflecting secondary transmission effects from rising oil prices. This component's monthly growth rate rebounded from 0.2% to 0.5%, though the overall structure remains relatively divergent. Most sub-components showed moderate changes, with only airfare and financial services prices rising notably. Physician services rose by 0.6% month-on-month, while hospital services fell by 0.3%, offsetting each other to keep the overall medical-related component at zero growth. Transportation services' monthly increase slowed from 0.6% in March to 0.3%. Against the backdrop of rising oil prices, reduced driving led to widespread weakness in prices for car rentals (-3.7%), vehicle maintenance (-0.8%), and parking fees (-0.4%). However, airfare prices further increased by 2.8% after a 2.7% rise in the previous month, reflecting airlines continuing to pass on fuel cost pressures through ticket prices. Additionally, other personal services prices jumped, with financial services prices surging by 8.5% month-on-month, and tax preparation and accounting-related fees rising by 11.9%. This change may be related to the concentrated April tax filing deadline, tax adjustments under relevant legislation, and the opening of tariff refund application channels.
Overall, this data indicates that inflationary pressures stemming from US-Iran tensions are still being released and face further upside risks. In this context, the Federal Reserve is likely to continue its wait-and-see approach, keeping interest rates unchanged in the near term. During the previous April FOMC meeting, there was significant internal divergence over whether to include more accommodative language in the policy statement, with an increasing number of officials leaning towards avoiding signaling easing. Simultaneously, recent signs of labor market stabilization have refocused Fed policy on the inflation target. The latest data does not show a clear easing of inflation; instead, it reinforces the view that inflation is sticky, which will further support a cautious monetary policy stance. Based on this, the bank maintains its previous view: the Federal Reserve will keep rates unchanged for a longer period, with the next potential rate cut possibly delayed until the fourth quarter.
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