The Consumer Price Index (CPI) in April, one of the reference indicators to measure inflation, showed a notable slowdown in April and closed the month at 0.3%, as published on Wednesday by the Department of Labor. However, the price increase in the last 12 months is still high: 8.3%.
The 0.3% CPI for April is the lowest figure since August and is slightly lower than the 1.2% in March. The year-on-year (8.3% for the last 12 months) showed a slight improvement compared to 8.5% in March, but it is still the second highest figure since 1981.
According to the report of the Department of Labor (DOL, in English), one of the explanations for the slowdown in prices is in the drop in gasoline, 6.1% for April. The average price of fuel, however, is on the rise again in May.
Although the April report offers a positive sign, inflation remains one of the biggest concerns for Americans who are seeing their purchasing power affected.
“It’s too early to claim victory,” Jose Torres, a senior economist at brokerage firm Interactive Brokers, told the AP. “It’s not going to get any worse but it’s still too high a level.”
Many economists expect the year to end with a CPI of between 5% and 6%, a historically high level and very far from the 2% target set by the Federal Reserve (Fed, central bank) and which will probably exceed increases average wages.
Inflation, Biden’s headache
Republicans blame the president for overheating the economy with his $1.9 trillion aid package that included stimulus checks for families, unemployment benefits and tax breaks for child care.
In your message, Biden presented several initiatives to control the increase in prices and spoke of the factors beyond your control such as the problems in the supply chain generated by the coronavirus pandemic or the effects on the food market of Russia’s invasion of Ukraine.
The president also assured that the government will help reduce the escalation of prices by reducing the budget deficit and promoting competition in industries such as meatpacking, dominated by a few large companies.
Has inflation peaked in the United States?
There are several factors that suggest that inflation has already peaked and the figure for the month of April can serve to corroborate this. However, we will have to keep an eye on next month to be sure. Gasoline, whose fall in April served to slow down the CPI, is on the rise again in May.
On the other hand also used car prices fell. Automakers’ supply chains have loosened up a bit and new car sales have risen, reducing demand strain on used cars.
Another factor is that sharp price increases from just over a year ago are left out of the count. It was just last spring, when the economy reopened, that the shortage of supply caused the prices of many products to skyrocket. That also has its effect on the year-on-year inflation rate.
Excluding the especially volatile food and energy categories, economists have forecast so-called core prices rising 6% in the 12 months ending in April, up from 6.4% in March. That would be the first such slowdown since August.
The Fed raises interest rates to curb inflation
The unexpected persistence of high inflation has caused the Fed to embark on what may become its fastest series of interest rate hikes in 33 years.
Last week, the Fed raised its benchmark short-term rate by half a point, its steepest increase in two decades. And its president, Jerome Powell, signaled that more such increases are on the way.
The Fed is trying to accomplish the notoriously difficult and risky task of cooling the economy enough to curb inflation without causing a recession. Economists say such an outcome is possible but unlikely with inflation this high.
Meanwhile, by some measures, Americans’ wages are rising at the fastest rate in 20 years. Earning more allows more people, at least in part, to keep up with higher prices. But companies typically respond by charging customers more to cover their higher labor costs, which, in turn, increases inflationary pressures.