CONSUMER PRICES ARE STILL CLIMBING RAPIDLY
Index up 8.3% in April; gauge that subtracts groceries and gas picked up 0.6%
The pressures that have kept inflation elevated for months remain strong, fresh data released Wednesday showed, a challenge for households that are trying to shoulder rising expenses and for the White House and Federal Reserve as they try to put the economy on a steadier path.
Annual inflation moderated for the first time in months in April, but the consumer price index still increased 8.3 percent, an uncomfortably rapid pace. At the same time, a closely watched measure that subtracts food and fuel costs accelerated.
Core inflation — which excludes costs for groceries and gas — picked up 0.6 percent in April from the prior month, faster than its 0.3 percent increase in March. That measure is particularly important for policymakers, who use it as a gauge to help determine where inflation is headed.
While the letup in annual inflation gave President Joe Biden and the Fed a dose of comfort, the overall picture remains worrying. Policymakers have a long way to go to bring price increases down to more normal and stable levels, and the newest data is likely to keep them focused on trying to slow an inflation rate that remains near its fastest pace in 40 years.
“Inflation is too high — they need to bring it down,” said Laura RosnerWarburton, senior economist at MacroPolicy Perspectives. “The reacceleration in core inflation is unwelcome.”
Stocks were turbulent Wednes
swinging between gains and losses as investors tried to parse the latest data. The S&P 500 ended the day down 1.6 percent.
Annual inflation may have now peaked, having climbed by an even-quicker 8.5 percent in March. The April slowdown came partly because gas prices dropped last month and partly because of a statistical quirk that will continue through the months ahead. Yearly price changes are now being measured against elevated price readings from last spring, when inflation started to take off. The higher base makes annual increases look less severe.
Still, even the White House greeted the new report with concern.
“While it is heartening to see that annual inflation moderated in April, the fact remains that inflation is unacceptably high,” Biden said in a statement. “Inf lation is a challenge for families across the country, and bringing it down is my top economic priority.”
Economists do expect price increases to continue to ebb somewhat this year because they think that consumer demand will taper off and supply chain stresses will ease. The crucial question is how much and how quickly that moderation might happen.
Many analysts have been predicting a slowdown in price increases or even outright price cuts on many goods, but those forecasts look increasingly uncertain. Lockdowns in China and the war in Ukraine threaten to exacerbate supply shortages for semiconductor chips, commodities and other important products.
“There are persistent issues in supply chains,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank. “And the most recent developments have not been positive.”
The path ahead for the car market, for instance, remains unclear. Supply shortfalls for used vehicles show some signs of easing, but shortfalls persist in computer chips, which are crucial to automobile produc
tion. As a result, companies are still struggling to complete vehicles.
Prices for used cars and trucks declined in April compared with the prior month, though the drop was smaller than the one they experienced in March. While car parts had become cheaper in March, they resumed their monthly increase in April. New car prices also accelerated after a lull, climbing 1.7 percent from the prior month.
And services prices are now increasing quickly, as rents climb and as worker shortfalls lead to higher wages and steeper prices for restaurant meals and other labor-intensive purchases. If that continues, it could keep inflation elevated even as supply problems are resolved.
Rents picked up 0.6 percent in April from March, and a measure of housing costs that uses rents to estimate the cost of owned housing climbed 0.5 percent, up from 0.4 percent the prior month. The pickup in housday,
ing costs is particularly important because they make up about a third of the overall inf lation index.
“Domestically generated inflationary pressures remain strong,” Andrew Hunter, senior U.S. economist at Capital Economics, wrote after the report was released.
Part of the increase in core inflation in April owed to trends that should not last, most notably a big pop in airfares as travel demand surges following the latest wave of the coronavirus. Even so, Rosner-Warburton said she expected annual CPI inflation to remain at 5.1 percent at the end of the year, far above levels that prevailed before the pandemic.
The Fed aims for 2 percent annual inflation on average, though it defines that goal using a related but different measure that tends to run slightly lower and comes out with more of a delay. That inflation index picked up 6.6 percent in the year through March, and April
figures will be released later this month.
The fact that high inflation is lasting so long is a problem for the central bank. After a full year of unusually swift increases, household and investor expectations for future price changes have been creeping higher, which could perpetuate inflation if households and businesses adjust their behavior, asking for bigger raises and charging more for goods and services.
As such risks have mounted, the Fed has begun to lift interest rates to try to keep price increases from galloping out of control in a more lasting way. In March, Fed policymakers lifted their main policy interest rate for the first time since 2018, then followed that up with the biggest increase since 2000 at their meeting last week.
By making it more expensive to borrow money, officials are hoping to weaken spending and hiring, which could help supply to catch up with demand. As the economy returns to balance,
inf lation should come down.
Central bankers are hoping that their policies will temper economic growth without actually pushing unemployment up or plunging the U.S. into a recession — engineering what they often call a “soft landing.”
“I really want us to have that be the outcome, but I recognize that it’s not going to be easy to do,” Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said Monday.
Officials have roundly acknowledged that letting the economy down gently will be difficult, and some have suggested that they would be willing to inflict economic pain if that is what it takes to tackle high inf lation.
If the economy gets to a point at which unemployment begins climbing, but inflation remains “unacceptably high,” Bostic said price increases would be “the threat that we have to take on board.”