The Bureau of Labor Statistics said on Wednesday that inflation had risen again in April, pushing consumers to the brink and threatening economic expansion.
The Consumer Price Index, a broad-based measure of the price of goods and services, rose 8.3% year-over-year, exceeding Dow Jones estimates for an 8.1% gain. This represents a slight easing from the peak of March, but it is still close to the highest level since the summer of 1982.
Removing volatile food and energy prices, the so-called core CPI still rose 6.2%, contrary to expectations of a 6% gain, clouding expectations that inflation peaked in March.
Rising prices mean workers are losing ground. Actual wages adjusted for inflation, average earnings per hour fell 0.1% month on month despite a nominal increase of 0.3%. Last year, real income fell 2.6%, though average hourly earnings rose 5.5%.
Inflation has been the single biggest threat to the recovery since the onset of the epidemic, and 2021 saw the economy grow at its biggest single-year growth level since 1984. Rising prices at pumps and grocery stores are a problem, but inflation has spread beyond these two areas to housing, auto sales and other areas.
Federal Reserve officials have responded to the problem with two interest rate hikes so far this year and have promised to do more until inflation reaches the central bank’s 2% target. However, Wednesday’s data shows that the Fed has a big job ahead of it.
The month-over-month profit was also higher than expected – 0.3% for the headline CPI vs. 0.2% estimate and 0.6% increase for the core, contrary to the 0.4% profit outlook.
These readings came even though fuel prices fell 2.7% month-on-month, including a 6.1% drop for petrol. The BLS food index rose 0.9% in April, against a decline in energy. On a 12-month basis, energy costs still rose 30.3% while food prices rose 9.4%, according to unchanged data.
Adding to the concern is the steady rise in housing costs.
The shelter index, which makes up about one-third of the CPI weight, rose another 0.5%, consistent with the previous two months’ growth, and rose 5.1% year-on-year, its fastest gain since April 1991.
The stock market has reacted negatively to the Futures report, turning negative after being positive in the morning. The yield on government bonds has risen, pushing the benchmark yield close to 3.03% on the 10-year Treasury note.
Markets were looking for signs that the 8.5% CPI reading in March would turn into the peak of inflation in the epidemic era.
However, the April report found that “this is another upside inflation surprise and suggests that the recession is about to slow down rapidly,” said Seema Shah, chief strategist at Principal Global Investors.
Auto sales have also been a major contributor to inflation as supply chain problems, especially with semiconductors vital to car operating systems, have pushed up prices. Used car prices fell 0.4% month on month but new car prices rose 1.1%. Prices for the two categories rose 22.7% and 13.2%, respectively, last year.
Even in April, prices rose sharply across selected food areas. Amid bird flu scare, chicken prices rose 3.4% and eggs 10.3%, while bacon rose 2.9% and breakfast cereals rose 2.4% while ham prices fell 4.2%.
Airline fares have continued to climb as more people fly into the sky amid increased business travel and holidays. Prices rose 18.6% month-on-month and, according to unchanged data, rose 33.3% year-over-year.
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