Percentage change year over year
in the consumer price index
Year-over-year percent change in Consumer Price Index
The pressures that have kept inflation high for months remain strong, new data showed on Wednesday, a challenge for households trying to weather rising spending and for the White House and Federal Reserve as they try to put the economy on a more stable path.
Annual inflation moderated for the first time in months in April, but the consumer price index still rose 8.3%, an uncomfortably fast pace. Meanwhile, a closely watched measure that subtracts food and fuel costs has actually accelerated.
Core inflation – which excludes the cost of groceries and gasoline – rose 0.6% in April from the previous month, faster than its 0.3% rise in March. This measure is particularly important for policymakers, who use it as an indicator to help determine the direction of inflation.
While lower annual inflation has given President Biden and the Fed a dose of comfort, the bigger picture remains concerning. Policymakers still have a long way to go to bring price increases back to more normal and stable levels, and the latest data should prompt them to focus on trying to slow a rate of inflation that remains near its fastest pace in 40 years.
“Inflation is too high – they need to bring it down,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives. “The re-acceleration of core inflation is not welcome.”
Stocks were turbulent on Wednesday, swinging between gains and losses as investors tried to analyze the latest data. The S&P 500 ended the day down 1.6%.
Annual inflation may now have peaked, after climbing an even faster 8.5% in March. April’s slowdown came partly because gasoline prices fell last month and partly because of a statistical quirk that will continue for months to come. Annual price changes are now measured against the high price readings of last spring, when inflation started to take off. The higher base makes annual increases less severe.
Consumer Price Index 2022
Consumer Price Index 2022
Yet even the White House greeted the new report with concern.
“While it is encouraging to see that annual inflation moderated in April, the fact remains that inflation is at an unacceptably high level,” Biden said in a statement. “Inflation is a challenge for families across the country and reducing it is my top economic priority.”
Economists expect price increases to continue to moderate somewhat this year as they believe consumer demand will decline and supply chain strains ease. The crucial question is to what extent and how quickly this moderation could occur.
Many analysts are predicting slower price increases or even outright price declines on many goods, but those predictions are looking increasingly uncertain. Lockdowns in China and war in Ukraine threaten to exacerbate supply shortages of semiconductor chips, raw materials and other important products.
“There are persistent problems in the supply chains”, said Matthew Luzzetti, chief US economist at Deutsche Bank. “And the most recent developments haven’t been positive.”
The way forward for the automotive market, for example, remains unclear. Used-vehicle supply shortages show signs of easing, but shortages persist in computer chips, critical to auto production. As a result, companies are still struggling to complete vehicles.
Prices for used cars and trucks fell in April from the previous month, although the drop was smaller than that seen in March. While auto parts had become cheaper in March, they resumed their monthly rise in April. New car prices also accelerated after a lull, climbing 1.7% from the previous month.
And prices for services are now rising rapidly, as rents climb and labor shortages lead to higher wages and higher prices for restaurant meals and other labor-intensive purchases. ‘work. If this continues, it could keep inflation high even if supply issues are resolved.
Rents rose 0.6% in April from March, and a measure of housing costs that uses rents to estimate the cost of owned accommodation rose 0.5% from 0.4% in the month previous. The recovery in housing costs is particularly important, as they account for about a third of the overall inflation index.
“Nationally generated inflationary pressures remain strong,” wrote Andrew Hunter, senior US economist at Capital Economics, after the report was released.
Part of the rise in core inflation in April was due to trends that are unlikely to last, including a sharp rise in airfares as travel demand surges following the latest wave of coronavirus. Even so, Ms Rosner-Warburton said she expects annual CPI inflation to remain at 5.1% at the end of the year, well above levels that prevailed before the pandemic.
The Fed is aiming for an average annual inflation of 2%, although it sets this target using a related but different measure that tends to fall slightly and exit with more lag. This inflation index has risen 6.6% in the year to March, and April’s figures will be released later this month.
The fact that high inflation lasts so long is a problem for the central bank. After a full year of unusually rapid increases, household and investor expectations for future price changes have risen, which could perpetuate inflation if households and businesses adapt their behavior, demand bigger increases and charge more for goods and services.
As these risks grew, the Fed began to raise interest rates in an attempt to keep price increases from galloping in a more sustainable manner. In March, Fed policymakers raised their key interest rate for the first time since 2018, then followed up with the biggest increase since 2000 at their meeting last week.
By making borrowing more expensive, officials hope to weaken spending and hiring, which could help supply catch up with demand. As the economy returns to equilibrium, inflation should fall.
Central bankers are hoping their policies will temper economic growth without pushing up unemployment or plunging America into a recession – creating what they often call a “soft landing”.
“I really want this to be the outcome, but I recognize that it won’t be easy to do,” Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said in an interview Monday.
Officials clearly acknowledged that it would be difficult to let the economy down smoothly, and some suggested they would be prepared to inflict economic pain if that is what it takes to fight high inflation.
If the economy gets to a point where unemployment starts to climb, but inflation remains “unacceptably high”, Mr Bostic said price hikes would be “the threat we have to address”.
A challenge for policymakers — and even more so for families — is that price increases are surfacing in basic necessities. Food prices rose 0.9% in April from a month earlier, the 17th consecutive monthly increase, according to Friday’s report.
The increase was led by dairy products, soft drinks and a 10.3% monthly rise in the cost of eggs as bird flu decimated poultry flocks. Such inflation tends to particularly affect the poor, who spend more of their budget on necessities such as groceries and gasoline.
But while Americans are seeing strong job gains and strong wage growth — although not strong enough to fully counter inflation — many are managing to withstand rising costs for the time being, maintaining strong aggregate demand.
“Consumers seem willing to accept the higher menu prices, especially as inflation runs wide,” George Holm, chief executive of food retailer and restaurant supplier Performance Food Group, said on a call on Wednesday. to the results. “Nevertheless, it’s something to watch closely over the coming months and quarters.”
Ana Swanson contributed reporting.