USA: Inflation declines to 4.9%, but core consumer price increases are still high

USA: Inflation declines to 4.9%, but core consumer price increases are still high, In April, inflation decreased for the ninth consecutive month as rising petrol prices were offset by sustained reduction in food prices.A measure of underlying inflation that accounts for longer-term trends remained high.

Table of Contents

Consumer prices increased 4.9% from a year earlier, down from 5% in March and a 40-year high of 9.1% last June, according to the Labor Department’s consumer price index. That’s the smallest yearly increase since April 2021. On a monthly basis, prices rose 0.4% following a 0.1% increase in March.

For American shoppers and drivers, Wednesday’s inflation report was mixed. Gasoline prices jumped 3% just in April. By contrast, grocery prices dropped for a second straight month. Used car prices surged 4.4% after nine months of declines. Rental costs rose but at a slower pace.

However, the report showed some indications that inflation is still slowing down. After four consecutive months of price hikes, hotel costs fell 3% in April and airline fares fell 2.6%.

“It’s sticky and bumpy, but make no mistake, inflation is cooling,” said Gregory Daco, Chief Economist at EY-Parthenon.

(USA: Inflation declines to 4.9%, but core consumer price increases are still high)

What is the difference between core CPI and CPI?

Following a 0.4% gain in February, core prices, which don’t include volatile food and energy costs and instead track longer-term trends, grew by 0.4% in March. As a result, the yearly rise was reduced from 5.6% to 5.5%.

The report revealed that the nation’s road back to normal inflation levels will be uneven. Prices overall continued to post a strong increase from the previous month. Although goods inflation has been easing as COVID-related supply chain bottlenecks wind down, some items rose last month. Apparel prices increased and used car prices jumped after nine straight declines.

And while services prices are poised to pick up as Americans resume traveling and dining out more frequently, several of those cost increases slowed in April.

Will the Fed continue to raise rates?

The Federal Reserve this week signalled that it will likely suspend its aggressive campaign that has raised a key interest rate by 5 percent during the previous 14 months, despite the fact that inflation has only slightly decreased since that time. According to Fed experts, the failure of Silicon Valley Bank and two other banks would likely result in tighter lending requirements, a slowdown in the economy, and reduced inflation, which will reduce the central bank’s workload.

Economist Andrew Hunter of Capital Economics says the CPI report keeps the Fed on track to halt its rate hikes but shows that persistently high could prevent Fed officials from cutting rates to combat a weakening economy for a longer period.

(USA: Inflation declines to 4.9%, but core consumer price increases are still high)

What is the future of gas prices?

While gas prices increased in April they are down 12.2% from a year ago. In recent weeks, pump prices have fallen again. Nationally, regular unleaded gasoline averaged $3.53 a gallon Tuesday, down from $3.60 a month ago.

Are grocery prices going to go down?

The price of groceries fell by 0.2%, marking the second consecutive monthly decline, while the annual increase slowed to 7.1% from 8.4%. Due to a slowing in global demand, commodities like wheat and maize have seen a decrease in price recently.

In April, the price of eggs dropped by 1.5%, the third straight monthly decline, after a string of sharp bird flu-related increases but costs are still up 21.4% over the past year. Pork prices fell 1.2%; fish and seafood costs dipped 0.7%; and bread was down 0.3%.

But some costs continued to climb. Chicken prices increased 0.5% and uncooked ground beef, 0.6%.

Restaurant prices increased by 0.4% and are up 8.6% annually.

(USA: Inflation declines to 4.9%, but core consumer price increases are still high)

Is rent causing inflation?

Rent again was the chief driver of inflation but the increase continued to moderate. Rent picked up 0.6%, up from 0.5% in March but down from a string of stronger gains. Annually, the increase was unchanged 8.8%. Economists expect rents to fall, based on new leases, but that shift has been slow to filter through to existing leases.

Used car prices leaped 4.4% after as a flurry of wholesale cost increases finally showed up in retail prices but they’re still down 6.6% yearly. Prices had been tumbling after a pandemic-related run-up that pushed up costs by about a third. And apparel prices increased 0.3%.

Some goods prices softened as supply-chain snarls continued to improve. New car prices fell 0.2%. Furniture and bedding costs were down 0.5% and appliance prices declined 1.9%.

Meanwhile, some services became a bit less pricey despite Americans’ return to pre-COVID travel and other activities. Airline fares fell 2.6% and hotel rates slid 3%. And medical care services dipped 0.1% after a 0.5% decline the previous month.

Inflation winners and losers

The ten consecutive rate hikes by the Federal Reserve have made it more expensive to borrow, whether you’re buying an appliance with a credit card or getting a car loan.

The annual percentage rate on a new credit card has jumped from slightly above 16% to almost 24%. Meanwhile, in the past year, Freddie Mac’s 30-year mortgage rates have increased from 3.6% to 6.4%. That means if you made a $90,000 down payment and obtained a $450,000 mortgage, your monthly payment would spike by 31%, or roughly $615, according to a Bankrate calculator.

(USA: Inflation declines to 4.9%, but core consumer price increases are still high)

Mortgage rates

Though a lack of homes for sale and a still robust jobs market is keeping home prices high, costs dipped slightly year-over-year in February and March.

Rates may decline further before the end of the year if consumer prices continue to slip, convincing the Federal Reserve to pull back on interest rate hikes and making the marketplace more enticing to home buyers and sellers.

“Mortgage rates are likely to descend lower later in the year as the consumer price inflation calms down and changes the thinking of the Fed from tightening to possibly loosening the monetary policy,’’ says National Association of Realtors’ chief economist Lawrence Yun.

Mortgage rates have more than doubled since the Federal Reserve began hiking interest rates over a year ago to dampen inflation. But the latest rate increase of a quarter percentage point should not impact mortgage rates because the boost was expected, says Taylor Marr, Redfin Deputy Chief Economist.

Core Consumer Price Index

The core consumer price index is a measure of how consumer prices shift, not counting the costs of energy and food which are typically the most volatile components of the broader consumer price index. Economists expect the core consumer price index for April to show prices rose 0.3% over March, and 5.4%, year over year.

What is a good inflation rate?

The Federal Reserve’s target is an inflation rate of 2%. It has said that the 2% goal “is most consistent with the Federal Reserve’s mandate for maximum employment and price stability.”

S&P 500

Stock indices were mixed in late-morning trading Wednesday after the 8:30 inflation report showed inflation rose less than expected in April. The Dow Jones Industrial Average eased less than 1%; The S&P 500 rose 0.21% and Nasdaq futures climbed 0.65%.

(USA: Inflation declines to 4.9%, but core consumer price increases are still high)

Fed inflation report

The Personal Consumption Expenditure price index, the Federal Reserve’s preferred measure of inflation, comes out on May 26.

The next consumer price index report is scheduled to be released on June 13.

10-year treasury

Prices for 10-year Treasuries climbed 3.45%, sending yields lower, after the highly anticipated report said inflation at the consumer level was 4.9% last month, down from 5% in March and the lowest level in two years. That was slightly better than expected, allowing investors to bolster bets that the Federal Reserve will stop hiking interest rates and give the economy some breathing room. Yields move in the opposite direction of prices.

(but core consumer price increases are still high)

Inflation rate

In March, the inflation rate was 5% on an annual basis. The pace of price increases slowed for the ninth month in a row as prices at the pump and the grocery store declined.

What is stagflation?

Reuters reported last week that fears of stagflation were percolating on Wall Street ahead of today’s inflation report. Investors hoped the CPI data would indicate whether the Federal Reserve was succeeding in curbing inflation without damaging growth.

Stagflation happens when economic growth is sluggish while inflation is high. The term lacks a formal definition or specific threshold, but elements include high unemployment and a weakened economy as prices climb.

One factor that can help cause stagflation is a spike in the cost of raw materials, causing inflation and leaving people with less money to spend.

While far from assured, Reuters reported, the scenario has loomed large in investors’ minds as last year’s inflation surge forced the Fed to launch an aggressive campaign to hike interest rates that many have expected cause a recession. Some also believe the recent collapse of a handful of regional banks could hurt lending and slow growth, forcing the Fed to cut rates before inflation is tamed.

(USA: Inflation declines to 4.9%, but core consumer price increases are still high)

What is the difference between core consumer price and overall consumer price index?

While the Consumer Price Index measures how average prices shift over time for various goods and services, the core consumer price leaves out the costs of energy and food which are particularly volatile.