Inflation slowed in April for the 10th straight month. Featured Report Announced on Wednesday.
The consumer price index rose 4.9% year-on-year in April, below the 5% forecast by economists in a Bloomberg survey. Inflation has eased notably from its peak of just over 9% last summer, but remains well above its usual pre-pandemic annual rate of 2%.
Cheaper prices for flights, new cars and groceries, including eggs and produce, helped keep inflation down last month. as a gas bill And the rent skyrocketed. A key change is the slowdown in prices for some services. This is good for the Federal Reserve, which has been raising rates to slow the economy and keep inflation in check. Central bankers closely monitor service costs, partly because they have proven to be stubborn.
The report was welcome news for President Biden. Inflation has plagued voters for more than two years, weighing on the president’s approval ratings. Immediate concerns may fade as the price rise slows as the month progresses.
But economists caution against exaggerating progress. Inflation is showing signs of easing, but some of the decline since last summer has come as supply chains have recovered. Without this easy outcome, returning to normal inflation could be a long and bumpy road.
“Inflation remains tenacious. I don’t think the Federal Reserve will see this and cut rates or breathe a particularly big sigh of relief,” said Priya Misra, head of global rates research at TD Securities. rice field. “Not so soon. We cannot conclude that the inflation problem is over.”
Still, stocks surged in response to the data as investors (who tend to favor low interest rates) hailed it as good news for the Fed.
After stripping food and fuel to capture underlying trends in price increases (which economists call the core indicator), consumer prices were up 5.5% year-on-year, down from 5.6 last year. It slowed down slightly from %.
And indicators that closely monitor non-housing service prices have retreated even more meaningfully. Laura Rosner-Warburton, senior economist at Macropolicy Perspectives, said it was an encouraging sign that the stubborn element of inflation was finally on the brink of collapse, but travel costs may not last long. He said that the easing of the
The slowdown “was a bit of good news, but it was also probably a little crazy news,” she said.
Inflation has eased steadily in recent months, but it remains too high for policymakers.
Much of the slowdown in price gains is due to the easing of supply chain bottlenecks and easing commodity shortages that occurred during the height of the pandemic.Energy prices have since moderated Summer 2022 surge It had to do with the Russian invasion of Ukraine.
But underlying trends, such as unusually strong wage growth, that could keep inflation persistently high in the long run remain in place, which could prompt firms to charge more. .
That’s one reason Fed officials have been paying close attention to service prices. Services prices tend to be more sensitive to economic strength and can be difficult to slow down once they recover.
There is reason to expect more accurate service inflation in the coming months. Market-based tracking shows that rent growth is starting to slow, which should start showing up in official inflation data.
But the question is whether the Federal Reserve slowed the economy down enough to allow prices for other services like travel, manicures, child care and health care to follow suit.
The central bank has raised interest rates at the fastest pace since the 1980s, slowed lending and stifled growth over the past year, pushing borrowing costs above 5% this month.
These increases have made it more expensive to borrow to buy a home or expand a business. Wage growth is already starting to slow as growth slows and firms compete less aggressively for workers. This chain reaction is expected to sap demand and could make it difficult for businesses to raise prices without scaring off customers.
However, the full effect of the Fed’s move has yet to be seen. The impact could be compounded by the recent series of high-profile bank failures, which could frighten other financial institutions and backtrack on extending loans.
Congress is also nearing a showdown over raising the country’s debt ceiling, which could affect the outlook. If markets panic because Democrats and Republicans struggle to reach a deal and investors worry the U.S. government won’t be able to pay the bill, it could emerge over time. . hurt the economy.
Democrats have warned that brinkmanship policies could undermine strong economic progress by slowing inflation, but Republicans argued Wednesday that rapid inflation is a testament to calls for spending cuts.
With so many factors undermining the economy, Fed officials are now assessing whether borrowing costs need to be raised further or whether the steps taken so far will be enough to bring inflation back to normal. . New York Fed President John C. Williams told reporters in New York on Tuesday that the Fed’s next decision, whether to raise or suspend rates, would depend on future data.
“We’ll adjust our policies going forward based on what’s out there,” he said.
Policymakers receive the May consumer price report on June 13, the day before the decision, but officials usually give the market at least a hint of what to do with interest rates ahead of time. And the central bank is likely to pay close attention to April’s inflation report.
Fed officials will also receive readings of the May jobs report and the Personal Consumption Expenditure Price Index (which the Fed officially targets for its 2% inflation target, but will be released much later) before its next meeting. It’s planned. Private consumption indicators are based in part on data from the Consumer Price Report.
For now, economists say the latest inflation data are probably not enough to persuade policymakers to change course and cut interest rates soon.
“We’ll be on track to stop at the next meeting,” said Rosner-Warburton.
