Consumer prices jumped 0.8% in April as concerns escalate
WASHINGTON (AP) – A worrying bout of inflation hit the U.S. economy in April, with consumer prices for goods and services rising 0.8% – the biggest monthly jump in more than a decade – and l year-over-year increase reaching its highest rate since 2008.
The acceleration in prices, which has been building for months, has destabilized financial markets and raised fears that it will weaken the economic recovery after the pandemic recession.
Wednesday’s Department of Labor report showed significantly higher prices for everything from food and clothing to housing. A 10% increase in prices for used cars and trucks – a record jump – accounted for about a third of overall increases last month.
The cost of new cars rose 0.5%, the biggest increase since last July. Prices for vehicles, new and used, have skyrocketed due to strong demand and a shortage of computer chips that have slowed auto production and reduced supply to dealers.
Over the past 12 months, consumer prices have jumped 4.2% – the fastest increase since gaining 4.9% in the 12 months ended September 2008. Excluding volatile food and energy, l Core inflation rose 0.9% in April and 3% in the past 12 months.
After years of latent inflation, with the Federal Reserve struggling to raise it, worries about rising prices have become the top priority of economic concerns. Shortages of goods and parts linked to disrupted supply chains have been a key factor.
The Fed, led by President Jerome Powell, has repeatedly expressed its belief that inflation will prove temporary as supply bottlenecks are cleared and coins and goods flow normally again. But some economists have expressed concern about the accelerating economic recovery, fueled by growing demand from consumers who are spending freely again, as well as inflation.
“It looks like inflationary pressures are not only intensifying, but are likely to be present for at least the rest of the year,” said Joel Naroff, chief economist at Naroff Economic Advisors. “With robust growth, companies have pricing power that they haven’t had in decades, and they seem to be using it. “
Investors, too, have become increasingly nervous. On Tuesday, the Dow Jones Industrial Average lost more than 470 points – 1.4% – its worst day since February 26.
After the release of the CPI report on Wednesday, which showed a larger increase than economists expected, bond yields rose. The yield on the 10-year Treasury bill rose to 1.67% from 1.62% a day earlier. Bond prices tend to fall, leading to higher yields, when investors fear that rising inflation will erode the future value of the income that bonds earn.
The April inflation report showed food prices rose 0.4%, the biggest such increase since rising 0.5% last June. Energy costs, however, edged down 0.1%, as gasoline pump prices fell 1.4%, the biggest drop since May 2020.
Economists have warned, however, that gasoline prices could rise this month, depending on how long a shutdown lasts after the cyberattack on the colonial pipeline, which supplies the east coast with 45% of its fuel.
Last month, Powell suggested at a press conference that Fed officials expect inflation to exceed its annual target of 2% in the coming months, in part because of what economists call the base effect: year-over-year inflation will appear larger in April. and May because those months are compared to the same months in 2020, when prices fell as the pandemic shut down much of the country. Those year-over-year numbers should seem smaller when compared to the following months in 2020, when many prices recovered.
The Fed said it would allow prices to rise slightly above 2% for a period of time to offset the inflation deficits of the past decade.
Powell said that as long as rising inflation does not appear to hurt consumer and business expectations for price increases, the central bank would be willing to let prices rise without taking action to raise interest rates. This view was supported by comments from other Fed officials, including Lael Brainard, a board member who on Tuesday warned of premature Fed tightening that could hurt the economy.
Fed Vice President Richard Clarida admitted on Wednesday that he was “surprised” by the sharp rise in prices last month. In remarks to the National Association for Business Economics, he reiterated the Fed’s message that the increase was likely temporary, but if not, that the Fed would take the necessary steps to slow inflation.
“We have pent-up demand in the economy; it may take a while for supply to reach the level of demand,” Clarida said. “It will be very important that any pressures on inflation that arise are transient, and if they are not… we will use our tools to bring inflation to our longer term target of 2%.”
AP Economics writer Christopher Rugaber contributed to this report.
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