Inflation cooled off slightly in April as the pace of both yearly and monthly price growth dropped, according to data released Wednesday by the Labor Department.
The consumer price index (CPI), the Labor Department’s closely watched gauge of inflation,
rose 8.3 percent over the past 12 months and 0.3 percent in April alone. Economists expected annual inflation to drop to 8.1 percent in March and with a 0.2 percent rise in prices, according to consensus estimates.
Inflation slowed from a 8.5 percent annual rate in March and a whopping 1.2 percent month-over-month rise as gas and oil prices declined from a peak driven by the war in Ukraine.
Gasoline prices dropped 6.7 percent in April and energy prices on the whole dropped 2.7 percent last month after double-digit gains in March. Gas prices are still up 44.7 percent over the past 12 months, and energy prices remain 30.3 percent higher than they were in April 2021.
“The peak of inflation may be behind us, but today’s CPI report points to a long, slow descent or maybe even a plateau around 8% until prices start to drop significantly,” wrote Robert Frick, corporate economist with Navy Federal Credit Union, in a Wednesday analysis.
While a dip in gas prices brought some relief for consumers, inflation in other crucial goods and services continued to rise. Rising prices for food, shelter, airline fares and new vehicles were the biggest contributors to overall inflation in April, the Bureau of Labor Statistics said.
Food prices rose 0.9 percent in April and are up 9.4 percent on the year — the steepest annual increase since April 1981 — with groceries alone costing 10.8 percent more over the past 12 months. Prices for transportation services rose 3.1 percent on the month, and prices for medical care services rose 0.5 percent in April.
Inflation for goods other than food and energy, which economists call “core inflation,” also rose 0.6 percent in April after a 0.3 monthly increase in March. Core inflation is significant to economists because it strips out food and energy prices, which are more volatile, giving a clearer view into broader trends beyond those two markets.
“After 16 months of rising inflation, this is the first report that shows disinflation in the economy. However, the decline was mostly driven by a large decline in energy prices. Core inflation … actually accelerated and came in far higher than expected,” said Sinem Buber, ZipRecruiter lead economist, in a Wednesday analysis.
Inflation began rising rapidly a year ago as a newly vaccinated U.S. population snapped back to pre-pandemic spending levels and activities. Consumer spending had recovered rapidly, but businesses are still struggling to secure the workers, supplies and logistical support necessary to meet that demand.
Most economists also believe trillions of dollars in fiscal support deployed by both President Biden and former President Trump, along with the Fed’s ultra-low interest rates, have spurred too much spending, pushing up pressure on prices and wages.
“Since the beginning of 2021, a combination of massive government spending, supply chain disruptions, and strong consumer demand has unleashed high and persistent inflation that has dampened consumer confidence and created challenges for the Federal Reserve,” Buber said.
“April’s acceleration in core inflation raises concerns that inflation may still not have crested yet.”
Higher inflation also took a bite out of household incomes. Incomes adjusted for inflation fell 0.1 percent in April as the 0.3-percent increase in the CPI last month wiped out a 0.3-percent in crease in earnings. While wages are up 5.3 percent on the year, higher inflation has dampened or even negated the benefits for many housholds.
With core inflation on the rise, the Fed face more pressure to accelerate it ongoing interest rate hikes and concerns from financial markets about its ability to curb price growth. Fed Chair Jerome Powell acknowledged last week it would be “very difficult” for the central bank to raise rates fast enough to cool inflation off without causing a broader economic decline.
Biden and congressional Democrats are also struggling to make a dent on inflation as rising prices decimate their political support ahead of the midterm elections. While the White House has sought to expand domestic oil production, boost employment in trucking, reduce port backlogs and ease certain tariffs, economists say there is little the U.S. can do to solve supply snarls and shortages beyond its borders.
Updated at 10:29 a.m.