US inflation might have dipped last month from 40-year high

After a year of soaring prices for gas, food and other necessities, inflation may have eased slightly in April from a 40-year high, the first slowdown after seven consecutive months of worsening price increases.

The government is expected to report Wednesday that consumer prices jumped 8.1% last month compared with a year earlier, according to a survey of economists by data provider FactSet. That would be down from the 8.5% year-over-year surge in March, the highest since 1981.

The forecasted drop in annual inflation, if it occurs, would add to other signs that consumer inflation may finally be peaking. Month-to-month price increases are also easing, along with some other inflation gauges.

Yet the April rate would still mark the second-highest inflation in four decades and an ongoing burden for families, especially lower-income Americans. And it would be only a modest step in a likely long and arduous road back to the mild 2% inflation that the Fed has set as its target level. Many economists expect annual price increases to settle into a 5% to 6% range by year’s end, a historically high level that will probably exceed average wage gains.

“It’s too early to declare victory,” said Jose Torres, senior economist at Interactive Brokers. “It’s not going to get any worse, but it’s still at an uncomfortably high level.”

Beyond the financial strain for households, inflation is posing a serious political problem for President Joe Biden and congressional Democrats in the midterm election season, with Republicans arguing that Biden’s $1.9 trillion financial support package last March overheated the economy by flooding it with stimulus checks, enhanced unemployment aid and child tax credit payments.

Biden sought to take the initiative Tuesday and declared inflation “the No. 1 problem

facing families today” and “my top domestic priority.”

Biden blamed chronic supply chain snarls related to the swift economic rebound from the pandemic, as well as Russia’s invasion of Ukraine, for igniting inflation. He said his administration will help ease price increases by shrinking the government’s budget deficit and by fostering competition in industries, like meatpacking, that are dominated by a few industry giants.

Still, new disruptions overseas or other unforeseen problems could always send U.S. inflation back up to new highs. If the European Union decides, for example, to cut off Russian oil, gas prices in the United States would likely accelerate. China’s COVID lockdowns are worsening supply problems and hurting growth in the world’s second-biggest economy.

Earlier signs that U.S. inflation might be peaking didn’t last. Price increases decelerated last August and September, suggesting at the time that higher inflation might be temporary, as many economists — and officials at the Federal Reserve — had suggested. But prices shot up again in October, prompting Fed Chair Jerome Powell to start shifting policy toward higher rates.

This time, though, several factors are pointing to an inflation peak. Gas costs, which soared in March after Russia’s invasion of Ukraine, fell on average in April and likely slowed inflation.

Used car prices are also expected to have dropped last month. Automakers’ supply chains have unraveled a bit, and new car sales have risen.

Another factor will be how sharp price increases from a year ago affect the new inflation calculations. The prices of many goods spiked last spring as the economy reopened and a surge in demand overwhelmed supplies. But this year, monthly price increases for many goods have been slowing. That may have effect of easing the yearover-year inflation rate.

Furniture costs, for example, had jumped 1.8% just in March 2021 and 2.1% the next month. Yet this March, furniture rose only 0.6%, potentially lowering year-over-year inflation.