Inflation once again went up in April, continuing a rise that had pushed consumers to the brink and posed a threat to the economic expansion, as per a report by the Bureau of Labor Statistics which was published on Wednesday.
The consumer price index went up 8.3% compared to a year ago, which is higher than the Dow Jones estimate of 8.1%. This shows slight ease from the peak observed in March but was still close to the highest level seen since summer 1982.
US #inflation hit 8.3% YoY vs 8.1% expected but slowed from previous month's 4-decade high. Removing volatile food and energy prices, so-called core CPI still rose 6.2%, against expectations for a 6% gain. pic.twitter.com/TKNJAgTFSe
— Holger Zschaepitz (@Schuldensuehner) May 11, 2022
Excluding the volatile prices for food and energy, the so-called core CPI still went up 6.2%, versus the expected 6% gain, discouraging hopes that the inflation had already peaked back in March.
The gains month-over-month were also higher than expected – the headline CPI was 0.3% while its estimate was at 0.2%, and the core saw 0.6% while the estimate was a 0.4% gain.
The price increases also meant that workers carried on to lose ground. Real wages adjusted for inflation went down 0.1% for the month even with a 0.3% nominal increase in average hourly earnings. Over the past year, real earnings tanked 2.6% even with average hourly earnings going up 5.5%.
Inflation Becomes Most Significant Threat to Pandemic Economic Recovery
Inflation has become the single most significant threat to an economic recovery that started early during the COVID-19 pandemic and that had 2021 stage the most significant single-year growth level since 1984. Surging gas and grocery prices have become a problem, but inflation has seeped into housing, auto sales, and many other areas.
Officials from the Federal Reserve have responded to the problem with two interest rate increases this year. They have also pledged more interest rate hikes until the inflation goes back down to the central bank’s goal of 2%. Although, the data released on Wednesday show that there’s more work to be done by the Fed in the near future.
The CPI gains reported came even while energy prices have gone down 2.7% for the month, including a 6.1% drop in gasoline. Meanwhile, the BLS food index went up 0.9% in April, which countered energy deceleration. Energy costs remained high, up 30.3%, while food saw a 9.4% increase on a 12-month basis, as per adjusted data. Also, this week, gasoline costs at the pump attained their highest level ever, not adjusted for inflation.
“We’re starting to see energy pull back a little bit, but it’s not enough,” Kathy Jones, chief fixed income strategist at Charles Schwab. said. “The markets were hoping for a better number, and it’s not good enough to rule out more Fed tightening.”
Apart from these, the rising housing costs also add to everyone’s worries.
The shelter index, making up around one-third of the CPI weighting, went up another 0.5%, consistent with the index’s rive over the past couple of months. It was also up by 5.1% yearly, which marks its quickest gain since April 1991.
Despite having an initial negative reaction, stocks were positive after the report was released. Government bond yields increased, propelling the close to 3.02% on the benchmark 10-year Treasury note.
Markets have been seeking signs that the CPI reading in March, at 8.5%, would be the peak inflation during the pandemic.
However, given this April report, it seems “this is another upward inflation surprise and suggests that the deceleration is going to be painstakingly slow,” according to Seema Shah, the chief strategist at Principal Global Investors.
The prices of Airline tickets carried on their climb as more people chose to fly amid a surge in business trips and vacations. Prices went up by 18.6% on the month increased, per unadjusted data, 33.3% over the past year.
Sales in the automobile industry have also become a large contributor to inflation as supply chain issues, most especially given the shortage of semiconductors, have caused the prices to go up. Used vehicle prices went down, however, 0.4% on the month, while new vehicle prices went up by 1.1%. Prices increased 22.7% and 13.2% for used and new vehicles, respectively, over the past year.
Significant price increases for some food areas were also seen in April. Chicken prices increased by 3.4%, while egg prices increased 10.3% amid a bird flu scare. Meanwhile, bacon prices increased by 2.5%, cereal prices went up 2.4%, and ham prices fell by 1.8%.