WASHINGTON (AP) – After nearly a year of steady decline in consumer price data, consumer price data released Wednesday is likely to show that U.S. inflation remained stubbornly high in April, a sign that it may be entering a newer, more difficult phase entry.
According to a survey of economists by data provider FactSet, consumer prices are expected to have risen 0.4% in March-April, much faster than the previous month’s 0.1% rise.
YoY prices are expected to have risen 5% in April, the same yoy increase as in March. If this forecast proves correct, it would be the first time annual inflation has not eased after nine months of decline.
Higher gas prices, home rentals and possibly used cars are among the items that may have accelerated inflation last month. The costs for flight tickets and hotel rooms, on the other hand, are likely to have eased after months of increases.
For more than two years, high inflation has been a significant burden for American consumers, a continuing threat to the economy, and a frustrating challenge for the Federal Reserve. But now new problems are emerging.
The Fed has raised interest rates by a whopping 5 percentage points since March 2022 in an attempt to bring inflation back towards its 2% target. Not only have these higher rates made borrowing far more expensive for consumers and businesses, they have also contributed to the collapse of three major banks over the past two months and a likely fall in bank lending. The result could be a further weakening of the economy.
Even more ominously, the government’s debt ceiling could be breached by early June, and congressional Republicans refuse to raise the ceiling unless President Joe Biden and congressional Democrats agree to sharp spending cuts. If the debt ceiling is not raised in time, the nation would default on its debt, a scenario that could trigger a global economic crisis.
Inflation has slowed sharply since peaking at an annual rate of 9.1% last June. Still, many economists say the decline so far was likely the easy stretch. The supply chain mess that left many grocery shelves empty and delayed delivery of furniture, cars and electronics has been resolved. Gas prices have also fallen steadily after jumping in the wake of Russia’s invasion of Ukraine, although they rose again in April after OPEC agreed to cut oil production.
Excluding volatile food and energy costs, so-called core inflation is also likely to have remained elevated over the past month, with economists expecting increases of 0.3% in March-April and 5.4% year-on-year.
The Fed and many economists closely monitor core prices, which are considered a better measure of longer-term inflation trends. A key driver of core inflation — housing and other housing costs — rose 8.2% in March from 12 months earlier. Most economists expect apartment rents to grow much more slowly in the coming months, which will help slow inflation as more new apartment buildings are completed.
Chairman Jerome Powell and other Fed officials pay particular attention to the cost of services other than energy and housing. They find rising prices for services particularly persistent because they are heavily fueled by wage increases.
Restaurant meals, airline tickets, and hotel rooms have all risen in price as companies in these industries have had to raise wages to find and retain workers. Restaurant prices rose 8.8% year over year in March.
“The most stubborn area of inflation is core non-home services, which have been around 4.5% since last August,” John Williams, president of the Federal Reserve Bank of New York, said on Tuesday. Williams, who is close to Powell, is an influential voice on Fed policy.
“This is being driven by an ongoing aggregate supply and demand imbalance and will take the longest time to bring down,” Williams said.
When they met last week, Fed policymakers agreed to raise interest rates by a quarter point, the tenth straight rise, to about 5.1% – the highest level in 16 years. The Fed’s interest rate hikes aimed at curbing spending, growth and inflation have pushed up the cost of mortgages, auto loans, and credit card and business borrowing.
Most economists believe that rate hikes will have their intended effect over time. However, most also fear that the rate hikes will weaken the economy enough that it slips into recession sometime this year.
At last week’s meeting, the Fed signaled that it could now pause its rate hikes and take time to monitor the impact of its policies on the economy, which could take many months to become fully apparent.
Christopher Rugaber, The Associated Press
