Consumer prices in the United States rose again in April, and measures of underlying inflation stayed high, a sign that further declines in inflation are likely to be slow and bumpy.
Prices increased 0.4% from March to April, the government said Wednesday, up from a 0.1% rise from February to March. Compared with a year earlier, prices climbed 4.9%, down slightly from March’s year-over-year increase.
The nation’s inflation rate has steadily cooled since peaking at 9.1% last June but remains far above the Federal Reserve’s 2% target rate.
For everyday consumer items, 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.
Still, the data offered some signs that inflation is continuing to cool. Airline fares dropped 2.6% in April, and hotel prices fell 3% after four straight monthly increases.
Excluding volatile energy and food costs, core prices rose 0.4% from March to April, the same as from February to March. It was the fifth straight month that core prices have risen at least 0.4%. Core prices are regarded as a better gauge of longer-term inflation trends, and monthly increases at that pace are far above the Fed’s 2% annual target.
Compared with a year ago, core inflation rose 5.5%, just below a year-over-year increase of 5.6% in March.
The Fed is paying particular attention to a measure of services inflation that covers such items as dining out, hotel stays and entertainment and has remained chronically high for much of the past year. This measure, which excludes energy services and housing, rose just 0.1% from March to April and 5.2% compared with a year ago. It had exceeded 6% a month ago.
Last week, the Fed signaled that it might pause its rate increases, after imposing 10 straight hikes, so that it could take time to assess how higher borrowing costs have affected the economy. The full economic impact of the hikes, though, might not become evident for months.
For more than two years, high inflation has been a significant burden for America’s consumers, a threat to the economy and a frustrating challenge for the Fed. The central bank has raised its key interest rate by a substantial 5 percentage points since March 2022 to try to drive inflation back down to its 2% target.
Besides making borrowing far more expensive for consumers and businesses, those higher rates have contributed to the collapse of three large banks in the past two months and to a likely pullback in bank lending. The result could be a further weakening of the economy.
Even more ominously, the government’s debt ceiling may be breached by early June, and Republicans in Congress are refusing to raise the cap unless President Joe Biden and congressional Democrats agree to sharp spending cuts. If the debt ceiling isn’t raised in time, the nation would default on its debt, a scenario that could ignite a global economic crisis. When they met last week, the Fed’s policymakers agreed to raise their benchmark rate by a quarter-point, to about 5.1%—the highest level in 16 years. The Fed’s rate hikes, which are intended to cool spending, growth and inflation, have led to higher costs for mortgages, auto loans and credit card and business borrowing.
Most economists think the rate hikes will, over time, have their intended effect. Yet most also worry that the hikes will weaken the economy so much as to tip it into a recession sometime this year.