The latest report shows that US inflation has likely peaked, but the figures underscore the breadth of price increases in the economy and, when combined with firm wage growth, suggest high inflation will persist for some time.
Despite the Fed raising interest rates, including the biggest rate hike since 2000 last week, global headwinds like China’s lockdowns and resilient services’ demand may mean a slow road to the central bank’s 2% goal.
US consumer prices rose by more than forecast in April, indicating inflation will persist at elevated levels for longer and keeping the Federal Reserve on the path of aggressive interest-rate hikes.
The core consumer price index, which excludes food and energy, increased 0.6% from a month earlier and 6.2% from April 2021, according to Labor Department data released Wednesday. The broader CPI rose 0.3% from the prior month and 8.3% on an annual basis, a slight cooling but still among the highest readings in decades.
Some of the largest contributors to the monthly increase included shelter, food, airfares and new vehicles.
Treasuries declined and the S&P 500 rose in early trading. Traders steepened bets for the path of Fed moves, increasingly betting on a fourth straight half-point rate hike in September.
“The peak of inflation may be behind us, but today’s CPI report points to a long, slow descent or maybe even a plateau around 8%,” said Robert Frick, corporate economist at Navy Federal Credit Union.
Fed Chair Jerome Powell signaled last week that officials are open to several half-point increases in the central bank’s benchmark rate in the months ahead. The CPI will help shape estimates for the April personal consumption expenditures price index, the Fed’s preferred inflation gauge, which will be released on May 27.
Inflation has put President Joe Biden and Democrats on their heels this year, threatening their thin congressional majorities despite a robust job market and resilient consumer spending.
A key expectation for a moderation in inflation this year hinges on slowdown in goods prices as Americans shift their discretionary income to activities like travel and dining out. The rate of goods and other commodities inflation declined while services costs increased by the most since 2001 on a monthly basis.
Last week, Powell said “inflation is much too high” and emphasized the central bank understands the financial hardship for Americans.
Part of that hardship stems from the fact that inflation continues to erode even rapid wage gains. Adjusted for inflation, average hourly earnings fell 2.6% in April from a year earlier, marking the 13th straight decline, separate data showed Wednesday.
With Americans facing bigger bills for everything from groceries to gasoline, many have pinned blame on Biden. In a speech on the topic Tuesday, the president blamed the pandemic and Russia’s war in Ukraine.
