This morning’s consumer inflation report in the United States vindicates the view of the U.S. Federal Reserve Board that inflation is contained.

The U.S. Consumer Price Index rose less than expected in April. It advanced just 0.3% on the headline. Core prices were up 0.2%, driven by a 4% jump in tobacco prices and a 0.9% increase in recreation prices, such as higher ticket prices to major league baseball games. On a year-over-year basis, inflation remains contained at 3.3% for all items, and 2.6% for core.

The headline inflation was powered by the energy index advancing 1.8% on a 5% surge in gasoline prices. Two sectors that helped keep inflation down in April were clothing and computers. “The year-on-year gasoline price inflation trend isn’t going to get any worse, but we expect electricity costs to keep the headline CPI north of 3% through the summer,” says CIBC World Markets. “Core inflation still has some underlying momentum from services prices, but with slack emerging in global manufacturing and U.S. labour markets, there’s little chance of seeing core CPI running at much more than a low 3% pace.”

BMO Nesbitt Burns says, “This report further confirms the Fed’s view that inflation is expected to remain well contained, as the factors that kept prices from performing better in April were temporary and pose no ongoing threat to the inflation picture.”

CIBC concludes, “The Fed’s message seems to be that it can live with 3% inflation, and will err on the side of stimulus given that the balance of risks lie heavily weighted towards recession. Today’s report is fully consistent with our call for a 3.5% funds rate, perhaps achieved in two 25 basis point moves rather than another 50 bps jump.”