Inflation Slowed in April, Marking 10th Month of Moderation
Inflation slowed for a 10th straight month in April, a closely watched report on Wednesday showed, good news for American families struggling under the burden of higher costs and for policymakers in Washington as they try to wrangle rapid price increases.
The Consumer Price Index climbed 4.9 percent in April from a year earlier, less than the 5 percent that economists in a Bloomberg survey had expected. Inflation has come down notably from a peak just above 9 percent last summer, though it has remained far higher than the 2 percent annual gains that were normal before the pandemic.
Cheaper prices for airline tickets, new cars and groceries including eggs and produce helped to pull inflation lower last month even as gas prices and rents climbed briskly. In an important shift, prices for some services slowed — a positive for the Federal Reserve, which has been raising interest rates to slow the economy and wrestle inflation lower. Central bankers have been watching services costs carefully in part because they have been proving stubborn.
The report also provided welcome news for President Biden. Inflation has plagued voters for more than two years now, weighing on the president’s approval ratings. As prices climb less dramatically with each passing month, they may become a less pressing concern.
Yet economists warned against overstating the progress: While inflation is showing positive signs of cooling, a chunk of the decline since last summer has come as supply chains have healed. With that low-hanging fruit gone, it could be a long and bumpy path back to a normal inflation rate.
“Inflation is still sticky; I don’t think that the Fed is going to look at this and cut rates, or heave an especially big sigh of relief,” said Priya Misra, head of global rates research at TD Securities. “Not so fast. We can’t draw the conclusion that the inflation problem is over.”
Even so, stock prices jumped in response to the data as investors — who tend to prefer lower interest rates — greeted it as good news for the Fed.
After stripping out food and fuel to get a sense of the underlying trend in price increases — what economists call a core measure — consumer prices climbed 5.5 percent from a year earlier, a slight deceleration from 5.6 percent in the previous reading.
And a closely watched measure of services prices outside of housing costs pulled back even more meaningfully. That was an encouraging sign that a stubborn component of inflation is finally on the verge of cracking, but it was also driven partly by a moderation in travel expenses that might not last, said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives.
That slowdown offered “a little bit of good news, but also probably a little bit of a head fake,” she said.
While inflation has been gradually cooling for months, it has remained too elevated for policymakers.
Higher Prices for Services Are Now Driving Inflation
Breakdown of the inflation rate, by category
Note: The services category excludes energy services, and the goods category excludes food and energy goods.
Sources: Bureau of Labor Statistics; New York Times analysis
By The New York Times
Much of the slowing in price increases has come as supply chain bottlenecks that emerged during the depths of the pandemic have cleared up, allowing goods shortages to ease. Energy prices have also moderated after a surge in summer 2022 that was tied to Russia’s invasion of Ukraine.
But underlying trends that could keep inflation persistently high over time have remained intact, including unusually strong wage growth, which could prod companies to try to charge more.
That is one reason Fed officials have been paying such close attention to service prices: They tend to be more responsive to strength in the economy, and they can be difficult to slow down once they pick up.
There are reasons to hope for more measured services inflation in coming months. Rents have begun to climb more slowly in market-based trackers, which should begin to show up in the official inflation data.
But the question is whether the Fed has slowed the economy enough for other service prices — for things like travel, manicures, child care and health care — to follow suit.
Central bankers have raised interest rates over the past year at the fastest pace since the 1980s to slow lending and weigh down growth, lifting borrowing costs above 5 percent as of this month.
Those increases have made it more expensive to borrow money to buy a house or expand a business. As growth cools and companies compete less aggressively for workers, wage growth has already begun to slow. That chain reaction is expected to sap demand, which could make it harder for firms to increase prices without scaring away customers.
But the full effect of the Fed’s moves is still playing out. The fallout could be intensified by a series of recent high-profile bank failures, which might make other lenders nervous and prompt them to pull back on extending credit.
And Congress is approaching a showdown over raising the nation’s debt limit, which could also shape the outlook: If markets panic as Democrats and Republicans struggle to reach a deal and investors worry that the American government will fail to pay its bills, that could trickle out to hurt the economy.
Democrats have warned that the brinkmanship could undermine progress in a strong economy with slowing inflation, while Republicans argued on Wednesday that rapid inflation is evidence that they are correct to demand spending cuts.
With so many factors poised to weaken the economy, Fed officials are now assessing whether they need to raise borrowing costs further, or whether their moves so far will suffice to guide inflation back to normal. John C. Williams, the president of the Federal Reserve Bank of New York, told reporters in New York on Tuesday that the Fed’s next decision — to lift rates or to pause — would hinge on incoming data.
“We’ll adjust policy going forward based on what we see out there,” he said.
Policymakers will receive the consumer price report for May on June 13, the day before their decision, but officials typically give markets at least a hint of what they might do with rates ahead of time. Given that, central bankers are likely to pay close attention to the April inflation report.
Fed officials will also receive May jobs data and a reading of the personal consumption expenditures price index — the measure they officially target in their 2 percent inflation goal, but one that comes out with more of a delay — before their next meeting. The personal consumption measure builds partly on the data from the consumer price report.
For now, the fresh inflation figures probably aren’t enough to convince policymakers that they should change course and reduce interest rates soon, economists said.
“It probably keeps them on track to pause at the next meeting,” Ms. Rosner-Warburton said.
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