Annual inflation cooled last month to the lowest level since April 2021

It's been a two-year slog of enduring painfully high prices, but the light at the end of the tunnel just got slightly brighter for consumers.

Annual inflation continued its slow-but-steady deceleration in April, according to the latest Consumer Price Index released Wednesday.

The CPI climbed by 4.9% for the 12 months ended in April, according to the Bureau of Labor Statistics, representing a slightly slower pace of increase than the 5% in March. It was below economists' expectations for the number to remain unchanged.

It's the 10th consecutive month that the headline CPI rate has slowed, and it's at its lowest rate since April 2021 - when this bout of painfully high inflation started to spike.

Excluding food and energy costs, which tend to have more volatility, core CPI was unchanged at 5.5% for the 12 months ended in April.

On a monthly basis, both the headline and core indexes recorded increases of 0.4%, matching forecasts from economists, some of whom anticipated higher fuel and used car prices to provide some upward pressure.

"It's sticky and bumpy, but make no mistake, inflation is cooling," Gregory Daco, chief economist at EY, said in a statement.

April's data showed that the biggest month-on-month gains seen in the major categories came from used cars and trucks (up 4.4% from March but down 6.6% year-over-year); and gasoline (up 3% from March but down 12.2% annually). Gas prices, which typically rise in April because of higher travel activity, rose in April after OPEC+ announced a surprise production cut.

Shelter costs, which account for a good chunk of CPI - about one-third of the main index and 40% of the core - picked up as well, rising 0.4% for the month, which is the smallest monthly increase since January 2022. That large category is expected to "turn over" later this year and more closely reflect the declines seen in the rental market, economists say. There's a significant lag in how CPI calculates rents versus how they act in the market because of the infrequent timing of when the BLS collects the data, as well as when rents change in leases.

A welcome decline - albeit a slight one - came in the category of grocery prices, which fell 0.2% over the month, helping bring the annual rate of inflation there to 7.1%. It's the second month in a row that food at home prices pared back. Overall food inflation (which includes higher prices at restaurants) was flat for the second month, making it the softest back-to-back reading since mid-2019, noted Daco.

Prices continued to decline on a monthly basis in key staples such as meats, fruits and vegetables, and dairy products.

Going on two years now, Americans' budgets have been squeezed by high inflation, which peaked last summer at a 40-year high and has slowly come down amid a protracted Federal Reserve rate-hiking campaign. Since March of last year, the US central bank has raised its benchmark interest rate 10 times in an effort to cool inflation by stifling demand.

Those inflation-busting efforts make it more costly and harder to borrow money, buy a home, purchase a car or grow a business.

Fed Chair Jerome Powell has cautioned that the path downward for inflation would be a slow and bumpy one, and it would "take some time" to get the annual rate of price increases back to a more sustainable level.

Andrew Patterson, senior economist in Vanguard's investment strategy group, said: "This seems like another 'eye of the beholder' report with some good news for both sides of the inflation debate - whether or not we're seeing enough downward trend for the Fed to pause."

The Fed's next policymaking meeting is a month from now. Markets are pricing in an 87% chance that central bankers would pause on a rate hike at that June meeting, according to the CME FedWatch tool on Wednesday morning.

"The Fed can't declare victory yet on the inflation front," said Ryan Sweet, chief US economist for Oxford Economics. "They're not going to be able to declare victory for quite some time. It's going to take several more months before we start to see a lot of relief on the inflation front."

The Fed is paying close attention to how inflation behaves in the services sector, where price hikes can get "sticky" and not abate as quickly, because they're more heavily tied to workers' wage growth. The "supercore" services inflation metric that strips housing out decelerated in April to 5.2% year over year, said Megan Greene, global chief economist for the Kroll Institute.

"Which was at least going in the right direction," she said.

Between now and that June meeting, the Fed will get additional readings on inflation, housing, production and the labor market. On Thursday, that data will include the latest print on producer price inflation (which has cooled considerably in recent months) and jobless claims (which have trended upward).

"I think the Fed's going to hold pat for now, keep rates where they are to the end of the year," Greene said.

"This report doesn't do much to change that. Inflation was always going to be bumpy on the way down; this report was in the right direction, but it doesn't mean next month won't be in the wrong direction."