Inflation, which the Federal Reserve is closely monitoring, rose to 6.3% in April from a year earlier, a sign that the first recession since November 2020 and higher prices may finally be moderate, at least for now.
Inflation figure The Commerce Department said Friday It was below the four-decade high of 6.6% set in March. While high inflation is still causing hardship for millions of families, any reduction in price rises, if prolonged, will provide some relief.
From March to April, consumer spending rose to a healthy 0.9% year-on-year, the fourth-month high in inflation, the report said. Despite the rising prices, the country’s consumer willingness to continue spending freely helps keep the economy afloat. Nevertheless, all of those costs could help keep prices high and create the Federal Reserve’s goal of controlling inflation. Even harder.
“Inflation is finally coming down, but it’s a bit too early for high-pivots,” said Bill Adams, chief economist at Comerica Bank.
Adams noted that gas and food prices had risen in May, and that Russia’s war against Ukraine and locks on COVID-19 in China could further destabilize supply shortages and accelerate prices again.
The recession of consumers in the face of rising prices shows that economic growth is recovering in the current April-June quarter. The economy contracted at an annual rate of 1.5% in the first quarter, Mostly due to the increase in trade deficit. But analysts now predict that, on an annual basis, it will grow to 3% in the current quarter.
Despite high inflation, Americans were able to spend, Due to rising wages, reserves built up during epidemics and a recurring increase in credit card usage. Economists say those factors could boost spending and support the economy for much of this year.
Revenue rose 0.4% from March to April, slightly faster than inflation, the Friday report said. However, high inflation forces consumers to, on average, save less. The savings rate fell to 4.4% last month, the lowest level since 2008. However, Americans have amassed an additional $ 2.5 trillion in savings since the outbreak, and economists estimate the pile is slowly eroding.
Friday’s report, on a month-on-month basis, rose 0.2% from March to April, down from a 0.9% increase from February to March. The April increase is the lowest since November 2020.
Excluding volatile food and energy items, so-called core prices rose 0.3% from March to April, matching the previous month’s increase. Key prices were up 4.9% from the previous year, the first such drop since October 2020.
However, inflation is very high and this places a huge burden on low-income families, many of whom are black or Hispanic. Rising demand for furniture, appliances and other items, coupled with the slides in the supply chain, began to push up prices a year ago.
Customers have shifted some of their expenses from goods to services such as airfare and entertainment tickets. That trend will help reduce inflation in the coming months, though it is unclear how much.
Commodity prices, which were the main driver of inflation last year, rose by 0.2% in the previous month from March to April. Used car prices fell 2.3% in April, although they were still more expensive than they were a year ago. The prices of clothes, equipment and computers have also come down.
And retailers like Target have reported an increase in inventory With televisions, patio furniture and other household items, consumers are increasingly shifting their spending to travel and services related items and luggage and restaurant gift cards.
Those stores will have to offer discounts to clear inventory in the coming months. And automakers are increasing production as they unravel the problem of some supply chains and hire more workers. Both trends can lower the price of manufactured goods.
Nevertheless, the price of services such as restaurant food, air tickets and hotel rooms is still rising, offset by relief from cheap items. Rising gas and food prices, which have been exacerbated by Russia’s invasion of Ukraine, will have a painful effect on inflation, at least in the summer. According to the AAA, the national average price of a gallon of gas has reached $ 4.60. A year ago, it was $ 3.04.
Chairman Jerome Powell has promised to raise the central bank’s key short-term interest rates until inflation eases “in a clear and concrete way.” Those rate hikes have sparked fears that the central bank could slow its borrowing and spending, pushing the economy into recession.. That concern has caused stock prices to fall sharply over the past two months, although markets rallied this week.
Powell has signaled that the central bank will raise its benchmark rate by half-points in both June and July – more than double the regular rate increase.
Most economists predict that inflation, measured by the central bank’s preferred measure, will be around 4% or more by the end of this year. A price increase at that level means that the central bank will raise interest rates further to reduce inflation to its 2% target.
The well-known inflation measure, the Consumer Price Index, announced a decline in price gains earlier this month. CPI rose 8.3% in April over the previous yearIt fell 8.5% in March to a 40-year low.
The inflation measure, announced on Friday, differs in many ways from the consumer price index, also known as the per capita consumption expenditure price index, which explains why it shows lower inflation than the CPI.
PCE is a broad measure of inflation that includes payments made on behalf of consumers, such as insurance or medical services covered by government programs. CPI only offers out-of-pocket costs, which have risen sharply in recent years. Continuing rising rents weigh less on the PCE than on the CBI.
The PCE price index also seeks to quantify changes in how people shop when inflation rises. The result is, for example, that consumers can catch up when switching from expensive national brands to cheaper store brands.