(Bloomberg) -- Forecasters expect a monthly report on US consumer prices to show inflationary pressures moderated in April after three straight worse-than-anticipated readings to start the year.

The figures, to be published Wednesday by the Bureau of Labor Statistics, will probably show a key gauge of prices excluding food and energy advanced 0.3% last month, according to the median estimate in a Bloomberg survey. The broader consumer price index is seen rising 0.4%, thanks in part to higher gas prices.

Such an outcome would offer some relief for investors and Federal Reserve officials after the so-called core gauge rose 0.4% in each of the previous three months, topping estimates and raising concerns that it would take longer for inflation to return to the central bank’s 2% target.

“The Fed has effectively moved to the sideline, postponing any thought of a rate cut until the inflation data show sustained improvement,” Stephen Stanley, the chief economist at Santander US Capital Markets, said in a May 14 note. “In that context, I look for the April CPI to represent a small step in the right direction.”

Here’s what to watch for in key components of the report, which will be released at the same time as April retail sales data:

Rental Inflation

Rents are the largest component of the CPI, and they’re the biggest reason inflation remains elevated. Leading indicators suggest rent increases should be moderating, but progress toward that outcome has slowed so far in 2024.

The two categories to keep an eye on are owners’ equivalent rent, which comprises 27% of the CPI, and rent of primary residence, which accounts for another 8%. The two usually track each other relatively closely, but a divergence between them so far this year has raised questions about the outlook.

Read More: Why Powell Sees Rent Quirks as a Barrier to Rate Cuts

“Based on changes in market rents, home prices, and the BLS’s repeat and new tenant rent indexes, we think the next leg lower will occur in Q2. We pencil in combined rent and OER inflation at just over 0.40%,” Andrew Schneider, a senior US economist at BNP Paribas, wrote in a May 14 note previewing the April numbers.

“We think the biggest source of upside risks emanates from shelter inflation, specifically if our anticipated downturn comes later in the quarter than April,” Schneider said.

Restaurant Meals

“Food away from home” is excluded from the core CPI index, but it’s an important component of the Fed’s preferred core inflation gauge in the monthly personal consumption expenditures report, which will be published on May 31.

Restaurant inflation has moderated swiftly over the last year, likely thanks to receding food inflation and wage growth. In February and March, the food away from home category posted its smallest back-to-back increases since early 2021. But April could look worse after California raised minimum wages, according to Bloomberg Economics.

“Even if core CPI moderates in April, we see a risk that the core PCE deflator — the Fed’s preferred inflation gauge — may come in above CPI,” Bloomberg economists Anna Wong and Estelle Ou wrote in a May 14 report. “Higher menu prices following California’s 20% rise in fast-food minimum wages — which aren’t included in core CPI — likely boosted April’s core PCE deflator by 5 basis points.”

Transport Costs

Two other big storylines in the CPI data are airline fares and auto insurance. Monthly producer price index data published Tuesday showed airline passenger services costs fell 3.8% in April.

That measure is calculated differently and uses different input data than the CPI’s airline fares component, but analysts are still taking it as an indication that the CPI component is less likely to post a big increase. Moreover, the Fed’s preferred core PCE gauge uses airfares data from the PPI rather than the CPI, so investors will probably discount any upside surprise in that category Wednesday.

Motor vehicle insurance is another component that’s had big implications for the CPI in recent months, without having much impact on the PCE gauge. It surged 2.6% in March, marking the third-largest monthly increase on record in data going back to 1985 and almost single-handedly changing the narrative around the trajectory of services inflation.

Auto insurance has proven hard to forecast on a monthly basis, and analysts are generally unsure of what to expect in Wednesday’s report. The core CPI index rose by a full percentage point more than the core PCE index in the 12 months through March, and a moderation in auto insurance inflation will be key in helping to narrow the gap going forward.

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