Inflation inched downward in April, with prices rising by 3.4% on average in the last 12 months, down from 3.5% in March, according to the latest release of the Consumer Price Index on Wednesday. Although slight, it’s the first time the pace of inflation has declined in 2024. 

Core prices, which exclude volatile items like food and energy, increased by 0.3% in April, also slightly less than the past three months. The shelter index increased by 0.4%, making housing costs the largest factor in the monthly increase for the core index. 

With inflation sticking stubbornly above its 2% target and unemployment remaining low, the Fed is unlikely to lower rates until the second half of 2024, if at all. Don’t expect a respite from high interest rates on credit card debt or loans anytime soon.

“[Inflation is] still a full percent higher than the Fed’s target,” said Gregory Heym, chief economist at real estate service company Brown Harris Stevens. “When inflation has been trending flat or up slightly, I don’t know that you’re going to make that up in half a year. Unless something dramatic happens, the economy won’t need rate cuts.”

Following the May meeting of the Federal Open Market Committee, Chair Jerome Powell emphasized that the decision to cut interest rates depended on inflation and that the Fed remains committed to bringing inflation back to its 2% target.

He acknowledged that inflation had eased in the past 12 months, but the committee needed more evidence that progress was continuing and “the path forward is uncertain.”

The Fed indicated at its final meeting in 2023 that it anticipated making multiple interest rate cuts in 2024. The Federal Open Market Committee voted at its first three meetings in 2024 to continue holding the benchmark interest rate steady at a target range of 5.25% to 5.5%. The Fed will vote on rates at its upcoming meeting scheduled for June 11 to 12. 

Inflation isn’t something that can be tackled overnight, and though it’s down from its historic highs in 2022, it’s still taking a toll on US households and consumers. Here’s a quick primer on the state of inflation and steps you can take to prepare for what’s ahead.

What the latest CPI data tells us

At 3.4%, the yearly inflation rate is still lower than rates we saw last year -- it was at 4.9% in April 2023. However, even though prices aren’t increasing by as much as they were a year ago, they’re still higher than they were before the pandemic. 

Since the beginning of the year, the index’s inflation data has bucked expectations and continued inching upward, with the core index increasing by 0.4% in January, February and March before April’s 0.3% increase. 

The Bureau of Labor Statistics’ CPI is one of the most closely watched gauges of US inflation, tracking data on 80,000 products, including food, education, energy, medical care and fuel. 

April’s Personal Consumption Expenditures price index, prepared by the Bureau of Economic Analysis, will be released on May 31. In March, the PCE increased: Core inflation, excluding volatile energy and food, was up by 2.8% year over year and by 0.3% from the previous month. The PCE index includes all goods and services and is the Federal Reserve’s preferred inflation gauge.

How the Federal Reserve’s rate hikes relate to inflation

The Fed moderates inflation and employment rates by managing the money supply and setting interest rates. Part of its mission is to keep average inflation at a steady 2% rate. 

When the Fed increases the federal funds rate -- the interest rate banks charge each other for borrowing and lending -- it restricts how much money is available to borrow and spend, which has an impact on economic growth. Banks pass on rate hikes to consumers, meaning everything from credit card APRs to interest rates on personal loans tick up. Consequently, this can drive consumers, investors and businesses to pause their investments, leading to a rebalance in the supply-and-demand scales. 

In general, when interest rates are low, the economy and inflation grow. And when interest rates are high, the economy and inflation slow.

When the inflation rate hit 8.5% in March 2022, the Fed set off an aggressive sequence of interest rate hikes in an attempt to slow the economy and curb prices by reducing consumer borrowing. After 11 rate hikes, the Federal Reserve paused interest rates at a target range of 5.25% to 5.5% in July 2023. 

The Federal Reserve’s next meeting to vote on interest rates is slated for June 11 to 12.

What does inflation mean for you? 

Periods of high inflation make it harder to afford everyday essentials. Interest rate hikes make it more expensive to borrow money.

Mortgage and refinance rates are still relatively high, although rates are expected to decline slowly this year and into next. But don’t expect them to drop back to pandemic lows. If you’re ready to buy a home, focus on finding a house that’s within your budget and use these expert tips to score a lower rate.

Expect credit card interest rates to remain high through the end of the year and into 2025.

If you’re carrying credit card debt, consider ways to reduce the amount you pay in interest, including applying for a debt consolidation loan or a balance transfer card. Both can potentially help you avoid higher interest charges for a period of time while you pay down your balance.

On the flip side, there’s one financial advantage to increased rates: Many CDs, high-yield savings accounts, money market accounts and treasury bonds are offering annual percentage yields, or APYs, at around 4% and 5%. Experts recommend taking advantage of putting your funds in one of these accounts to get a bigger return on your balance before the Feds lower interest rates. The interest you earn can help you reach your emergency fund or sinking fund goal faster.