WASHINGTON–The pace of inflation slowed during April for the first time since August, but CU economists expect price increases will continue.
While prices still increased, new data for the Consumer Price Index show it was up 8.3% in the 12 months ended in April, the Bureau of Labor Statistics reported Wednesday, slightly higher than many economists had predicted. It marked a decrease from the 8.5% recorded in March, which had been the highest level in more than 40 years.
After more volatile product categories like food and energy are stripped out, the CPI stood at 6.2% over the same period, less than the 6.5% reported in March, according to the government report.
For April alone, prices increased by 0.3%, adjusted for seasonal swings, less than the 1.2% jump recorded in March. Without food and energy prices, core inflation rose 0.6%, more than the 0.3% advance in the prior month.
CUNA Economist’s Reaction
“April's core price index, which excludes food and energy, accelerated after a March slowdown due to rising prices for housing, air travel, and new cars,” said CUNA’s chief economist, Dr. Dawit Kebede. “The housing shortage, increased demand for summer travel, and supply constraints due to the lockdown in China will make it difficult for these prices to fall in the coming months. Housing prices – which account for one-third of families' spending – increased at an annualized rate of 6% in the last three months.
“There is a shift from durable goods to services in terms of what is driving April's price increases,” Kebede continued. “Prices for household appliances and used cars declined while recreation, transportation, and other services increased.
“The Federal Reserve raised interest rates by 50 basis points in May to maintain price stability by making it more expensive to borrow and spend. It is expected that another 50-basis point increase will come in June. Monetary policy change takes effect with a lag; hence the changes may not be sufficient to meet the Fed's year end inflation projection,” Kebede concluded.
NAFCU Weighs In
NAFCU Chief Economist and VP of Research Curt Long focused on energy prices.
"According to data released by the Bureau of Labor Statistics, inflation was 0.3% in April, which slowed year-over-year price growth to 8.2%. The deceleration was largely due to energy prices, which fell 2.7% during the month,” noted Long. “However, diesel is in short supply and likely contributed to the 18.6% surge in airline fares in April. The airfare spike was the largest one-month increase in the series, which started in 1963. While headline inflation slowed, core inflation—which excludes food and energy—accelerated to 0.6% in April. Housing costs make up one-third of the hypothetical consumption basket and advanced by 0.5% for the third month in a row, establishing a high floor for overall inflation. The FOMC has already committed to tighten policy aggressively this summer, and this report will do nothing to dissuade them from that plan. With the economy clearly slowing, if inflation fails to respond quickly to higher rates, it will place even greater pressure on the Fed and increase the odds of a recession."
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