By CHRISTOPHER RUGABER – AP Economics Writer
An inflation gauge closely watched by the Federal Reserve rose 6.3% in April from a year earlier, just below a four-decade high set in March and the first slowdown since November 2020.
Friday’s report from the Commerce Department added to other recent signs that while high inflation continues to cause hardship for millions of households, it may finally be moderating, at least for now.
The report also showed that consumer spending rose 0.9% from March to April, outpacing the inflation rate on a month-to-month basis for a fourth straight time. The continued willingness of consumers across the country to continue to spend freely despite inflated prices is helping to sustain the economy. Yet all of this spending is helping to keep prices high and could make the Fed’s goal of controlling inflation even more difficult.
Month over month, prices rose 0.2% from March to April, down from the 0.9% increase from February to March.
Yet inflation remains painfully high, and it places a heavy burden especially on low-income households, many of whom are black or Hispanic. Growing demand for furniture, appliances and other goods, combined with supply chain grunts, started driving prices up about a year ago.
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Consumers are now increasingly shifting their spending from goods to services, such as airline tickets and entertainment tickets. This trend could help calm inflation in the coming months, although to what extent is unclear. The cost of services such as restaurant meals, airline tickets and hotel rooms are also increasing.
Chairman Jerome Powell has pledged to keep raising the Fed’s short-term policy rate until inflation “falls in a clear and convincing way.” These rate hikes raised fears that the Fed, in its drive to slow borrowing and spending, could push the economy into a recession. This concern has caused stock prices to fall sharply over the past two months, although markets have rallied this week.
Powell said the Fed was aiming for a “soft or soft” landing, in which wages, consumer spending and growth slowed, but the economy avoided a downturn. Most economists say that while such a result is plausible, they doubt it can be achieved.
A better-known inflation gauge, the consumer price index, also signaled a slowdown in persistently high inflation earlier this month. The CPI jumped 8.3% in April from a year earlier, down from a 40-year high in March of 8.5%.
Yet rising gas and food prices, compounded by Russia’s invasion of Ukraine, will keep inflation readings painfully high at least until the summer. The national average price for a gallon of gasoline reached $4.60, according to AAA. A year ago it was $3.04.
Other trends, however, suggest that core inflation could continue to slow over the next few months. Retailers reported increased inventories of TVs, patio furniture and other home goods as consumers shifted spending more towards travel and service-related goods, such as luggage and gift cards restaurant.
These stores will likely need to offer discounts to eliminate inventory in the coming months. And automakers have ramped up production as some supply chain issues unravel and they’ve managed to hire more workers. Both of these trends could contribute to lower property prices.
At the same time, the higher wages of many workers, especially in restaurants, hotels and warehouses, will continue to push up the prices of services, which, in turn, would at least partly offset the advantage of cheaper goods.
And most economists expect inflation, as measured by the Fed’s preferred gauge, to still be around 4% or higher by the end of this year. Price increases to this level would likely mean that the Fed will raise interest rates further to bring inflation down to its 2% target.
The inflation measure released on Friday, called the Personal Consumption Expenditures Price Index, differs in some ways from the Consumer Price Index, which is why it shows a lower level of inflation than the US. CPI. Rents, which increase regularly, are less weighted in the PCE than in the CPI.
The PCE price index also seeks to account for changes in the way people buy when inflation jumps. This way, it can capture, for example, any trend in which consumers switch from expensive national brands to less expensive private labels.
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