Year-over-year percent change
in the Consumer Price Index
Year-over-year percent change in the Consumer Price Index
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 by 8.3 percent, an uncomfortably rapid pace. At the same time, a closely watched measure that subtracts food and fuel costs actually accelerated.
The so-called core price measure — which strips out groceries and gas — picked up 0.6 percent in April from the prior month, faster than its 0.3 percent increase in March. Central bankers and economists monitor that data point as they try to gauge where inflation is headed.
Even as the letup in annual inflation gives President Biden and the Fed a positive talking point and 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 Rosner-Warburton, senior economist at MacroPolicy Perspectives. “The re-acceleration in core inflation is unwelcome.”
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 lower 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.
2022 Consumer Price Index
2022 Consumer Price Index
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,” Mr. Biden said in a statement. “Inflation 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 production. 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 by 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 by 0.6 percent in April from March, and a measure of housing costs that uses rents to estimate the cost of owned housing climbed by 0.5 percent, up from 0.4 percent the prior month. The pickup in housing costs is particularly important, because they make up about a third of the overall inflation 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, Ms. Rosner-Warburton said that she expected annual C.P.I. 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 by 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, inflation should come down.
Central bankers are hoping that their policies will temper economic growth without actually pushing unemployment up or plunging America 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, the president of the Federal Reserve Bank of Atlanta, said in an interview 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 inflation.
If the economy gets to a point where unemployment begins climbing, but inflation remains “unacceptably high,” Mr. Bostic said that price increases would be “the threat that we have to take on board.”
One challenge for policymakers — and even more for families — is that price increases are surfacing in essentials. Food costs rose 0.9 percent in April from the previous month, the 17th consecutive monthly increase, Friday’s report showed.
The increase was driven by dairy, nonalcoholic beverages, and a 10.3 percent monthly increase in the cost of eggs, as avian flu decimated poultry flocks. Such inflation tends to especially hit the poor, who spend a bigger chunk of their budgets on needs like groceries and gas.
But as Americans see strong job gains and strong wage growth — albeit not strong enough to fully counteract inflation — many are managing to shoulder the rising costs for now, keeping overall demand strong.
“Consumers appear willing to accept the higher menu prices, particularly as inflation is broad,” George Holm, chief executive officer at the food distributor and restaurant supplier Performance Food Group, said on an earnings call Wednesday. “Still, this is something to closely monitor across the next few months and quarters.”