April inflation slowed after seven months of steady rise, a tentative sign that inflation may have peaked while putting a fiscal burden on US households.
Consumer prices rose 8.3% last month from 12 months ago, the Labor Department said Wednesday. This is lower than the 8.5% in March, the highest growth rate since 1981.
On a monthly basis, prices rose 0.3% from March to April, which is still an increase, but the lowest in eight months. Consumer prices surged 1.2% from February to March, largely due to a surge in gas prices triggered by Russia’s invasion of Ukraine.
Nationwide, the price of a gallon of gasoline has reached a record $4.40. According to AAA, but the figure has not been adjusted for inflation. High oil prices are a major factor. A barrel of US crude oil traded at around $100 a barrel on Tuesday. Gasoline fell to around $4.10 a gallon in April after reaching $4.32 in March.
In addition to the financial burden on households, inflation poses serious political problems for President Joe Biden and House Democrats during the midterm election season. Unemployment assistance and child tax credit payments.
On Tuesday, Biden took the lead and declared inflation “the biggest problem facing families today” and “my top domestic priority.”
Biden blamed Russia’s invasion of Ukraine, which sparked inflation, as well as chronic supply chain disruptions associated with a rapid economic recovery from the epidemic. He said his administration will help mitigate price hikes by reducing the government’s fiscal deficit and boosting competition in industries like meat packaging, dominated by some giants.
However, new turmoil abroad or other unexpected problems can always push US inflation back to new highs. For example, if the European Union decides to stop producing Russian oil, gas prices in the US will accelerate. China’s COVID-19 lockdown is exacerbating supply problems and hampering the growth of the world’s second-largest economy.
Previous signs that US inflation could peak did not last. Price hikes slowed in August and September, suggesting that high inflation may be temporary, as many economists and Federal Reserve officials have suggested. However, as prices surged again in October, Fed Chairman Jerome Powell began to shift policy towards higher rates.
But this time, several factors are pointing to the inflation peak. Natural gas prices, which soared in March after Russia’s invasion of Ukraine, fell on average in April and inflation may have slowed. Used car prices are also expected to decline last month. The automaker’s supply chain has loosened slightly and new car sales have increased.
Food and energy have survived their worst price surges over the past year, but analysts often monitor key figures to uncover underlying inflation. Also, core inflation usually rises slower than overall inflation and may take longer to fall. For example, rents have historically been rising at a rapid pace, and there is little sign that this trend will reverse any time soon.
Continuing unexpectedly high inflation, the Fed embarked on its fastest rate hike in 33 years. Last week, the Fed raised interest rates by 0.5%, the steepest increase in 20 years. And Powell signaled that more sharp rate hikes were coming.
The Fed is on a notorious and risky mission of cooling the economy enough to slow inflation without causing a recession. Economists say such an outcome is possible, but impossible when inflation is this high.
Meanwhile, American wages are rising at the fastest rate in 20 years. Their higher salaries allow more people to keep up with the higher prices, at least in part. However, employers usually respond by charging customers more to cover higher labor costs, which in turn increases inflationary pressures.
Last Friday’s April employment report included hourly wage data that suggests wage growth is slowing, and if it continues, it could help ease inflation this year.