Consumer Prices Jump in April, in Latest Signal of Inflation’s Stubbornness

Compared with a year ago, prices rise 4.9 percent, far above the Fed’s 2 percent inflation target.

Michael M. Santiago/Getty Images
Traders on the floor of the New York Stock Exchange on April 26, 2023. Michael M. Santiago/Getty Images

WASHINGTON — Consumer prices in the United States accelerated in April after months of declines, with measures of underlying inflation suggesting that rising costs could persist for months to come.

Prices rose 0.4 percent between March and April, the government said Wednesday, up from 0.1 percent between February and March. Compared with a year earlier, prices climbed 4.9 percent, down just slightly from March’s year-over-year increase.

The nation’s inflation rate has steadily cooled since peaking at 9.1 percent last June but is running far above the Federal Reserve’s 2 percent target rate.

The Fed is paying particular attention to so-called core prices, which exclude volatile food and energy costs and are regarded as a better gauge of longer-term inflation trends. 

Core prices rose 0.4 percent between March and April, the same level recorded between February and March. It was the fifth straight month that core prices have risen by 0.4 percent or more. Increases at that pace are far above the Fed’s 2 percent target.

Compared with a year ago, core prices rose 5.5 percent, just below a yearly increase of 5.6 percent in March.

Economists say the overall slowdown in American inflation since last summer might turn out to have been a relatively easy phase of the nation’s drive to conquer inflation.

The supply chain snarls that left many grocery shelves bare and delayed the delivery of furniture, cars, electronics and numerous other goods have been resolved. Gas prices have dropped since topping $5 a gallon nationally after Russia’s invasion of Ukraine, though they rose again in April after OPEC agreed to cut oil output.

Yet unlike goods prices, the costs of services — from restaurant meals to auto insurance, dental care to education — are still surging. A major reason is that companies have had to raise pay in those industries to find and retain workers. 

Federal Reserve officials say that fast-rising wages, while good for workers, have contributed to higher costs in services industries because labor makes up a significant portion of those industries’ expenses.

Last week, the Fed signaled that it might pause its rate increases, after imposing 10 straight hikes, so that it could take time to assess how higher borrowing costs have affected the economy. The full economic impact of the hikes, though, might not become evident for months.

For more than two years, high inflation has been a significant burden for America’s consumers, a threat to the economy and a frustrating challenge for the Fed. The central bank has raised its key interest rate by a substantial 5 percentage points since March 2022 to try to drive inflation back down to its 2 percent target.

Besides making borrowing far more expensive for consumers and businesses, those higher rates have contributed to the collapse of three large banks in the past two months and to a likely pullback in bank lending. The result could be a further weakening of the economy.

Even more ominously, the government’s debt ceiling may be breached by early June, and Republicans in Congress are refusing to raise the cap unless President Biden and congressional Democrats agree to sharp spending cuts. If the debt ceiling isn’t raised in time, the nation could default on its debt. 

When they met last week, the Fed’s policymakers agreed to raise their benchmark rate by a quarter-point, to about 5.1 percent — the highest level in 16 years. The Fed’s rate hikes, which are intended to cool spending, growth and inflation, have led to higher costs for mortgages, auto loans and credit card and business borrowing.

Most economists think the rate hikes will, over time, have their intended effect. Yet most also worry that the hikes will weaken the economy so much as to tip it into a recession sometime this year.

Associated Press

The New York Sun

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