Tuesday, May 24, 2022

Inflation down slightly to 8.3% in April as Fed begins tough fight

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Inflation surged a higher-than-expected 8.3% in April, remaining near its steepest level in decades as the Federal Reserve scrambles to cool the economy with a series of rate hikes that have rattled investors.

The data indicated inflation may be reaching its peak after hitting 8.5% in March – but also highlighted the difficult task facing the Fed as it aims to tamp down price increases without triggering a recession.

On a monthly basis, the Consumer Price Index, a key inflation gauge that tracks the cost of basic goods and services – rose 0.3% from March to April. That was down from a whopping 1.2% increase from February to March.

Ahead of the release, economists polled by Dow Jones predicted the CPI would jump 8.1% in April.

The core CPI, or the price of goods excluding volatile food and energy costs, was 6.2% on an annualized basis – higher than a projected 6%.

High food prices are a key contributor to inflation.

Despite the slight downtick, inflation remains stubbornly high despite the Biden administration’s effort to bring down prices – putting pressure on American households who face steep costs at the gas pump and in grocery stores.

And gas prices have surged to fresh record highs in May – a development not reflected in Wednesday’s data.

President Biden has faced intense criticism from Republican lawmakers who argue his policies have contributed to the inflation surge. Meanwhile, the president has largely blamed the issue on supply chain disruptions and Russian President Vladimir Putin’s brutal actions in Ukraine.

President Biden
President Biden says inflation is his top domestic priority.

Biden sought to ease concerns about higher prices during a speech earlier this week, declaring that inflation was his “top domestic priority.”

Inflation has increased since the beginning in 2021 as global supply chain disruptions related to the COVID-19 pandemic slam the US economy. A tight labor market, higher costs for shipping and materials and Russia’s invasion of Ukraine have added further pressure.

Gas prices, which sat at a national average per gallon of $ 4.11 one month ago, surged above $ 4.40 this week. Prices were even higher in states such as New York and California.

Fed Chair Jerome Powell
Fed Chair Jerome Powell is aiming to cool inflation by raising interest rates.

The increase came as the Russia-Ukraine war continued to roil global energy markets and the European Union weighed a ban on Russian energy imports, raising further supply concerns.

The Fed’s high-wire attempt to cool inflation without triggering a recession has weighed on US markets for months – even after Fed Chair Jerome Powell indicated earlier this month that the bank wasn’t considering rate hikes higher than a half-percentage point.

But the Fed’s half-point hike was still the sharpest increase since 2000 and investors have responded to the inevitability of tighter monetary policy that makes borrowing money more expensive – sending stocks lower for several consecutive weeks.

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