US inflation reached 8.3% last month, but is slowing from a 40-year high

Inflation slowed in April after seven months of relentless gains, a cautious sign that price increases could peak, while still putting financial pressure on US households.

Consumer prices rose 8.3 percent last month from 12 months earlier, the Labor Ministry said on Wednesday. That was less than the 8.5 percent year-on-year increase in March, the highest rate since 1981.

On a monthly basis, prices rose by 0.3 percent from March to April, a still increasing percentage, but the smallest increase in eight months.

Consumer prices were up 1.2 percent from February to March, mainly due to a sudden rise in gas prices following the Russian invasion of Ukraine.

According to the American Automobile Association (AAA), the price of a gallon of regular gasoline has hit an all-time high of $4.40, though that figure has not been adjusted for inflation. The high oil price is the main factor. A barrel of US benchmark oil sold for about $100 a barrel on Tuesday. Gas had fallen to about $4.10 a gallon in April, after hitting $4.32 in March.

Inflation becomes political challenge

Aside from the financial pressures on households, inflation poses a serious political problem for President Joe Biden and Congressional Democrats in midterm election season, with Republicans claiming Biden’s $1.9 trillion financial bailout last March overheated the economy by with stimulus measures, improved unemployment benefits and child tax credits.

On Tuesday, Biden tried to take the initiative, declaring inflation “the biggest problem facing families today” and “my top domestic priority.”

President Joe Biden speaks about inflation in the South Court Auditorium at the White House complex in Washington on Tuesday, May 10, 2022. (Manuel Balce Ceneta / AP Photo)

Biden blamed chronic supply chains linked to the rapid economic recovery from the pandemic, as well as Russia’s invasion of Ukraine, for fueling inflation. He said his administration will help mitigate price hikes by reducing the government’s budget deficit and promoting competition in industries such as meat packaging, which are dominated by a few industry giants.

Still, new disturbances abroad or other unforeseen problems can always push US inflation to new highs. For example, if the European Union decides to shut down Russian oil, gas prices in the United States are likely to accelerate. China’s COVID lockdowns are exacerbating supply problems and hurting growth in the world’s second-largest economy.

Earlier signs that US inflation could peak did not last. Price increases slowed last August and September, suggesting at the time that higher inflation could be temporary, as many economists — and Federal Reserve officials — had suggested.

But in October, prices rocketed again, prompting Fed Chair Jerome Powell to shift policy toward higher rates.

More walking rates to come

This time, however, several factors point to an inflation spike. Natural gas prices, which rose in March after the Russian invasion of Ukraine, fell on average in April and probably slowed inflation. Used car prices are also expected to fall in the past month. The supply chains of automakers have been unraveled a bit and new car sales have soared.

While food and energy have endured some of the worst price spikes of the past year, analysts often track the key figure to get a sense of underlying inflation. Core inflation also tends to rise more slowly than general price increases and may take longer to fall. For example, rents are rising at a historically rapid pace and there is little sign that that trend will reverse any time soon.

The unexpected continued high inflation has prompted the Fed to embark on what may be the fastest string of rate hikes in 33 years. Last week, the Fed raised its short-term benchmark by half a point, the strongest increase in two decades. And Powell signaled that there are more such sharp rate hikes to come.

The Powell Fed is attempting the notoriously difficult — and risky — task of cooling the economy enough to slow inflation without triggering a recession. Economists say such an outcome is possible, but unlikely with such high inflation.

Meanwhile, Americans’ wages are rising at the fastest pace in 20 years by some measures. Their higher wages allow more people to at least partially keep up with higher prices. But employers typically respond by charging customers more to cover their higher labor costs, which in turn increases inflationary pressures.

Last Friday’s jobs report for April included hourly wage data that indicated wage growth was slowing, which, if continued, could help reduce inflation this year.

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