The prices of goods and services in the United States rose four tenths in April from the previous month, as expected by experts, and year-on-year inflation fell to 4.9% for the first time in two years, according to data published Wednesday by the Bureau of Labor Statistics.
The increase in house prices contributed the most to the monthly increase in all items, followed by the increase in the price of used cars and trucks and gasoline. The increase in gasoline prices more than offset declines in other energy components, with energy rising 0.6% in April.
Food prices were unchanged in April, as they were in March. The price of food at home fell 0.2% during the month, while that of food outside the home rose 0.4%.
Excluding food and energy prices, core inflation rose 0.4% in April, the same as in March. The Federal Reserve (Fed) and many economists believe that this indicator better measures inflation in the country's economy.
A store touts the liquidation of some of its inventory in Downers Grove, Ill., on April 26, 2023.Nam Y. Huh/AP
According to a survey of economists by data provider FactSet, experts had suggested prices rose 0.4 percent from March to April, much faster than the previous month's 0.1 percent.
Higher gasoline prices, apartment rents and possibly used cars are among the items that may have accelerated inflation last month. On the contrary, the cost of airline tickets and hotel rooms is expected to have fallen after months of increases.
For more than two years, high inflation has been a major burden on U.S. consumers, a constant threat to the economy, and a frustrating challenge to the Federal Reserve. However, new problems are now emerging.
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Since March 2022, the Federal Reserve has raised its policy interest rate by 5 percentage points to try to reduce inflation to its 2% target. In addition to making lending to consumers and businesses more expensive, these higher rates have contributed to the failure of three major banks in the past two months and a likely pullback in bank lending. The result could be a further weakening of the economy in the short term.
Even more worryingly, the public debt ceiling could be exceeded in early June. Congressional Republicans refuse to raise it unless President Joe Biden and congressional Democrats agree to steep spending cuts. If the debt ceiling is not raised in time, the country would default on its debt, a scenario that could trigger a global economic crisis.
This has increased food and wages in the U.S. in the last year.
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Inflation has slowed sharply since peaking at 9.1% annually last June. Still, many economists say the decline so far has probably been the easy phase. Supply chain problems that left many supermarket shelves empty and delayed the delivery of furniture, vehicles and electronics have already been resolved. Gas prices have also fallen steadily after rising in the wake of Russia's invasion of Ukraine, although they climbed again in April when the Organization of the Petroleum Exporting Countries (OPEC) agreed to cut oil production.
Excluding volatile food and energy costs, so-called core inflation is also expected to have remained high last month: economists had forecast a 0.3% increase from March to April and 5.4% from a year earlier.
Persistent rise in basic services
The Fed and many experts closely monitor core prices, which are seen as a better measure of long-term inflation trends. One of the main drivers of core inflation, the price of apartments and other housing expenses, rose 8.2% in March from the previous 12 months. Most economists expect apartment rents to grow much more slowly in the coming months, helping to curb inflation, as more new apartment buildings are completed.
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Federal Reserve Chairman Jerome Powell and other central bank officials are paying special attention to the cost of services, excluding energy and housing. They consider the rise in service prices to be particularly important because it is so driven by wage increases.
Prices for restaurant meals, airline tickets and hotel rooms have risen steadily as companies have had to raise wages in those sectors to find and retain workers. Restaurant prices grew 8.8% in March from a year earlier.
"The most persistent area of inflation is basic services, excluding housing, which has hovered around 4.5% since last August," John Williams, president of the Federal Reserve Bank of New York, said Tuesday. Williams, who is close to Powell, is an influential voice in Fed policy.
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"This is driven by a continued imbalance in global supply and demand, and it's what will take the longest to come down," Williams said.
At their meeting last week, Fed policymakers agreed to raise their benchmark rate by a quarter point, the tenth straight hike, 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 pushed up the costs of mortgages, auto loans and credit card and business loans.
