A shopper in Greenville, New York, on April 30, 2023.
Robert Nickelsberg | Getty Images News | Getty Images
Since April’s CPI reading was positive, it meant that broadly speaking, consumers didn’t see a drop in prices. But it shows that their growth rate has slowed sharply from a peak of 9.1% in June 2022.
Policymakers aim to keep inflation at around 2% a year. It may be another year or so before we get there, but “we’re definitely moving in that direction,” Zandi said.
Where consumers saw price drops in April
Consumers saw an outright drop in average prices in certain categories in April.
Grocery prices, for example, fell 0.2% this month after falling 0.3% in March – a trend that should continue as supply chains continue to normalize, labor and diesel costs, key inputs from farm to transport. shelves), economists say.
Monthly prices for airline tickets, new cars, hotels and home energy such as electricity, fuel oil and utility gas services also fell.
Where consumers saw price increases in April
On the other hand, categories such as housing, used cars and trucks, motor vehicle insurance, and recreation and personal care saw notable monthly price increases, according to the Bureau of Labor Statistics.
Gasoline prices also rose 3% in April from March, despite falling 12% over the past 12 months.
Housing — the largest component of the average household’s budget — was the biggest contributor to inflation in April, the Bureau of Labor Statistics said. Housing costs rose 0.4% month-on-month in April, down from 0.6% in March.
However, average rents have slowed or even declined over the past six months – a trend that will soon be reflected in lower Economists said inflation readings for housing, because those price dynamics typically take months to be reflected in federal data.
“It looks like inflation in the (housing) category has peaked,” said Andrew Hunter, senior U.S. economist at Capital Economics.
Overall, households are doing much better relative to inflation in staples such as food, energy and housing than they were a few months ago, said Moody’s Analytics’ Zandi.
“Gas prices are a lot lower than they were a year ago,” he said. “Food prices are no longer rising rapidly.
“Rents are now flat or even down,” Zandi added. “These are key items in people’s budgets and they all feel good at this point in time.”
Why inflation is soaring to multi-decade highs
Consumer prices started rising rapidly in early 2021 as the U.S. economy began to reopen after pandemic-related shutdowns. Helped by savings built up on government bailouts, Americans unleashed a cascade of pent-up demand for dining out, entertainment and vacations.
Meanwhile, the rapid reopening of economies has disrupted global supply chains, dynamic exacerbated by Russia’s invasion of Ukraine. In other words, supply cannot keep up with consumers’ willingness to spend.
Inflation — which has intensified in economies around the world during the pandemic — was initially isolated in physical commodity categories such as used cars and trucks. But the dynamic has changed.
Right now, it’s mostly driven by the labor market, not a shortage of physical goods, economists say.
We are increasingly confident that inflation is making a comeback.
Mark Zandi
Chief Economist, Moody’s Analytics
Job vacancies have surged to record highs as businesses scramble to hire workers as the pandemic economy reopens. This demand tilts the job market in favor of workers with ample opportunity. They are seeing wages rise at the fastest pace in decades as employers race to hire them.
Economists say strong wage growth has prompted employers – especially labour-intensive service firms – to raise their prices.
But now, “the extreme excess demand for workers from earlier is easing,” Hunt said.
These labor market dynamics should continue to exert downward pressure on headline inflation.
“From here, the trend is definitely much better,” Hunter said. “I think we’re finally seeing clear signs of progress.”
