What's going on?

Wednesday�s US inflation data showed consumer prices rose just a tad less than expected last month.

What does this mean?

There�s good and bad news in the latest US inflation report. On the bright side, April’s consumer prices rose just 4.9% annually � the first reading to come in under 5% in two years. And that dropoff might suggest that the Federal Reserve (the Fed) is finally having some success with its relentless interest rate hikes, after inflation peaked at around 9% last June. But hold the applause: both the headline number and core inflation � a key measure that tosses aside volatile prices like food and energy � barely fell, showing that this could turn into a war of attrition. That�s got economists doubting that the Fed will end up cutting rates this year, despite poor traders� hopes and dreams.

Why should I care?

For markets: The Fed�s breather.
After last week�s sizzling jobs data stirred up concerns, these cooler-than-expected inflation figures got markets optimistic again � and they could give the Fed the leeway it needs to go ahead with its long-awaited pause too. Plus, there are some other factors poised to hit inflation anyway. Data shows that banks are already making it harder to get loans, and that might hit spending � helping to lower inflation�s temperature a little. The only catch: that dampened spending might also slow growth, ultimately upping the odds of a recession.

The bigger picture: Ahead of the pack.
The Fed might be mulling over a break from rate hikes, but its peers are still going strong. The Bank of England, for one, is expected to increase rates by another 0.25 percentage points on Thursday. And the hard-pressed European Central Bank, for another, isn�t expected to stop until September � with experts reportedly thinking that three more hikes are needed to get inflation under control.