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Inflation hit 8.3 percent in April compared to last year, showing signs of leveling off

It remains near a 40-year high, but little change from a month ago could be a positive sign for the price of goods, services and the broader economy.
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The inflation rate was little changed from March to April, a potential sign that the rapid growth in the cost of goods and services may soon taper off.

Consumer prices rose by 0.3 percent in April after having risen by 1.2 percent in March, according to data the Bureau of Labor Statistics released Wednesday. Compared with one year ago, the inflation rate grew by 8.3 percent in April. The number in March was 8.5 percent.

April’s core inflation measure — the change in the price of goods and services not including food and energy — was 0.6 percent, compared to 0.3 percent in March.

The numbers indicate that inflation, which has been sitting at a 40-year high since December, is showing signs of cooling off. But some experts warn that it may be too soon to tell where inflation goes from here.

And households are still feeling the squeeze of rising prices. The largest increases for April were in airfares; food, including meat and bread; shelter; and new vehicles.

Airfares climbed nearly by 19 percent in the month. The research group Capital Economics noted that airfares have surged by nearly 35 percent over the past three months — likely reflecting higher fuel costs, it said.

Although gas prices in April declined by 6.1 percent over the previous month, prices at the pump were already back at all-time highs this week — recent information not reflected in Wednesday's data release.

Economists said after the BLS report was released Wednesday that they remain concerned that prices are not decelerating as rapidly as had been hoped.

“The pace of price increases moderated, but not as much as expected," Greg McBride, the chief financial analyst at the financial services group, said in a note.

"Excluding a decline in energy prices — which appears outdated by this point — the increases remain widespread. With the annual rate ticking down from 8.5 percent to 8.3 percent, it can be tempting to say we’ve seen the peak, but we’ve also been head-faked before as was the case last August.” 

The pickup in core inflation in April could mean the Federal Reserve will consider increasing interest rates more aggressively, said Andrew Hunter, a senior U.S. economist at Capital Economics, a research group.

"Overall, the April data will probably strengthen the Fed’s resolve to continue hiking rates by [0.5 percent] at the next couple of meetings — and could lead to renewed speculation about a [0.75 percent] hike or an inter-meeting move," Hunter wrote in a new note to clients. "But with goods shortages tentatively easing and signs that wage growth is set to cool, we still think a more pronounced drop back in inflation will allow officials to slow the pace of tightening in the second half of the year."

The Fed has indicated that 0.75 percent interest rate hikes are not being actively considered.

The Biden administration and the Federal Reserve have both framed inflation as the top economic concern nationally. Last week, the Federal Reserve announced it had raised its key interest rate by 0.5 percent as part of its effort to cool off the economy, and more rate hikes are expected this year.

President Joe Biden, speaking Tuesday about inflation, highlighted steps the administration has taken to ease the burden on Americans, but he did not announce any new policy initiatives to address the issue. Biden said the inflationary environment is a global problem, pointing to the war in Ukraine and pandemic-related supply chain issues as reasons for rising costs.

“We’re seeing historic inflation in countries all over the world,” Biden said.

In a note published before Wednesday's data release, McBride of Bankrate highlighted housing, which he said accounts for 40 percent of the core Consumer Price Index, "as it does for many household budgets," he said, referring to the proportion of household income that families spend to keep roofs over their heads.

"With double-digit increases in rents kicking in, this puts the household budget in a vise even if food and energy costs level out,” he said.

McBride also noted that mortgage rates have jumped by more than 2 percentage points this year.

"Until we see sustained evidence of easing inflation pressures, the risk is to the upside," he said. "However, when we do see inflation pressures simmer down, mortgage rates will reverse course quickly — particularly if the economy is slowing, too.”

Mortgage prices have climbed this year, but the 30-year mortgage interest rate fell from 5.64 percent last week to 5.4 percent this week.

Wednesday's inflation numbers also arrived amid signs of moderating wage growth. Last week, the BLS reported that monthly wage growth had decelerated to 0.3 percent from 0.5 percent, although on an annual basis it was unchanged at 5.5 percent growth — not enough to keep pace with inflation.

At least one economist believes inflation peaked in March. In a note to clients Tuesday, Ian Shepherdson, the chief economist at Pantheon Macroeconomics, a research group, said that while at least one more 0.5 percent rate hike is likely for June, the Fed may pause in July.

"Fed officials will remain cautious, because they know the decline in inflation will slow in the third quarter," Shepherdson said. "But the pressure on policymakers to continue hiking by [one-half percent] per meeting won’t be sustained at its current fever-pitch when inflation is falling," he said.