Inflation expected to tick down in April as Fed officials weigh rate cuts

On Wednesday, investors will digest one of the most important data points the Federal Reserve will consider in its next interest rate decision: April's Consumer Price Index (CPI).

The inflation report, set for release at 8:30 a.m. ET, is expected to show headline inflation of 3.4%, a slight deceleration from March's 3.5% annual gain in prices, according to estimates from Bloomberg. Over the prior month, consumer prices are expected to have risen 0.4%, matching March's month-over-month increase.

Higher energy prices, fueled by an increase in gas prices, are expected to contribute to a "relatively firmer headline CPI print," Bank of America economists Stephen Juneau and Michael Gapen wrote in a note to clients last week.

"The good news is that gasoline prices have fallen in May as geopolitical risks to higher oil prices have eased for the time being. Therefore, further increase in the near-term could be more challenged," the economists said.

On a "core" basis, which strips out the more volatile costs of food and gas, prices in April are expected to have risen 3.6% over last year — a slowdown from the 3.8% annual increase seen in March, according to Bloomberg data.