Economists Estimate Rapid Pace of U.S. Inflation Eased in April

The CPI measures what consumers pay for goods and services. The figures are set to be released at 8:30 a.m. ET on Wednesday.

Lower annual inflation last month would mark the first monthly easing of price increases since August 2021. The annual rate of inflation has risen sharply since early 2021, when the U.S. economy’s rebound from the Covid-19 pandemic accelerated, leading to supply disruptions and other imbalances that have put upward pressure on prices.

On a monthly basis, the CPI is estimated to have risen a seasonally adjusted 0.2% last month after a 1.2% increase in March—a sharp easing driven mainly by declining gasoline prices in April. The so-called core-price index—which excludes the often-volatile categories of food and energy—is estimated to have increased 0.4% on the month, faster than March’s 0.3% gain. That compares with an average monthly gain of 0.2% for both measures in the two years before the pandemic.

On a 12-month basis, the core-price index is estimated to have risen 6% in April, down from March’s 6.5% rise, which was the highest rate since August 1982.

High inflation is a downside of strong growth, fueled in part by low interest rates and government stimulus to counter the pandemic’s impact. The Federal Reserve faces the tricky feat of tightening monetary policy enough to quell inflation and cool the economy, without throttling growth and causing a recession. Central bank officials on May 4 raised rates by a half-percentage point, the biggest increase since 2000.

A drop in the 12-month inflation rate is a possible sign that price increases are starting to ebb after hitting a 40-year high in March. However, the estimated high rate of one-month core inflation suggests that price pressures remain, said

Aneta Markowska,

chief financial economist at Jefferies LLC.

Some of the price surges fueling inflation are starting to ease. Gasoline prices fell slightly in April, after the late February Russian invasion of Ukraine sent them skyrocketing. Improving supply chains have also taken the edge off rapid price gains for vehicles—used car and truck prices were up 35.3% in March from a year earlier—and other goods. However, new sources of inflationary pressure are replacing those.

“Now what we’re starting to see is that pressure is no longer emanating from the supply side—it’s emanating from the labor-market side. And that’s less likely to go away on its own,” said Ms. Markowska. “So the Fed will have to work that much harder to get us back to 2% inflation.”

The U.S. economy added 428,000 jobs in April, the 12th straight month in which job gains exceeded 400,000. Despite the furious pace of hiring, there was still a yawning gap between job openings and the pool of available workers—a sign that demand for labor is far outstripping supply. Employers are trying to hire workers to meet increased demand, posting 11.5 million job openings earlier this spring, the highest in records dating to 2000. The number of times workers quit also rose to a record high in March, at 4.5 million.

Those dynamics are pushing up wage gains—adding multiple pressures on inflation. Some employers are raising prices to offset higher labor costs. Strong wage growth and hiring are also simply putting more income in Americans’ pockets.

The brisk pace of spending is a sign that consumers are for now able to absorb higher prices.

“We’re still at a point where consumer and business resistance to higher prices is severely reduced because no one has confidence that if they wait they’ll find the price they want later,” said

Lou Crandall,

chief economist of Wrightson ICAP. “That does give businesses more pricing power, [but] that’s probably a temporary phenomenon.”

Wendy Fisher, the owner of Good Day Pet Sitters, a boutique dog-walking and pet-sitting service in Dallas, said inflation has strained her otherwise booming business. Rents have shot up in the neighborhoods she serves, pushing her workers to areas outside the city. Higher gasoline prices have left her staff paying around twice as much for travel compared with a year ago.

“I have a really great staff and I need to retain these people—I don’t want to lose them over the cost of gas, or to a retail store where they can park their car and stay all day,” Ms. Fisher said.

In January, she reduced the geographic area she serves, cutting off business to about 40 customers. She also started distributing prepaid gas cards from a nearby

Shell

station to her workers to offset extra travel expenses. “I need gas prices to go down long term because my bottom line is really affected,” she said.

Most economists expect the 12-month inflation rate to come down in coming months, in part due to arithmetic factors known as base effects. That is, the consumer-price index rose sharply in the spring and early summer of 2021. As those earlier readings fall out of the basis for comparison, the 12-month inflation readings will likely decline, even if inflation accelerates on a monthly basis.

Supply-chain pressures have also shown signs of improving recently, among them an increase in auto production. However, China’s strict lockdowns to contain a Covid-19 outbreak are weighing on manufacturing and transportation. “A lot of this [inflation] is still driven by logistical bottlenecks and as those ease you can get some payback in some categories like autos,” Mr. Crandall said.

Higher interest rates should also start biting into demand. And for most consumers, inflation is eclipsing historically high wage gains.

Chip Miller hasn’t received a raise in five years. With inflation rapidly eroding his purchasing power, he has cut back on car trips out of state to visit relatives and started shopping around to save on groceries. “We haven’t altered our lifestyle horribly but where it does show up is my ability to put money into our retirement account,” said Dr. Miller, a 67-year-old marketing professor in Des Moines, Iowa.

The hit to savings is one of a number of retirement-related worries, as well as the decline in purchasing power for his retirement funds. Housing affordability is another. His home value has appreciated at a much lower rate than those in Raleigh, N.C., and other places where he dreams of retiring. He said those hopes are dimming as the Fed raises rates.

“The houses in places I’d like to move to are going for roughly twice what mine does, and mortgage rates have gone up 2.25 percentage points,” he said. “So I might retire to a tent, or just stay where I am.”

Write to Gwynn Guilford at [email protected]

The CPI measures what consumers pay for goods and services. The figures are set to be released at 8:30 a.m. ET on Wednesday.

Lower annual inflation last month would mark the first monthly easing of price increases since August 2021. The annual rate of inflation has risen sharply since early 2021, when the U.S. economy’s rebound from the Covid-19 pandemic accelerated, leading to supply disruptions and other imbalances that have put upward pressure on prices.

On a monthly basis, the CPI is estimated to have risen a seasonally adjusted 0.2% last month after a 1.2% increase in March—a sharp easing driven mainly by declining gasoline prices in April. The so-called core-price index—which excludes the often-volatile categories of food and energy—is estimated to have increased 0.4% on the month, faster than March’s 0.3% gain. That compares with an average monthly gain of 0.2% for both measures in the two years before the pandemic.

On a 12-month basis, the core-price index is estimated to have risen 6% in April, down from March’s 6.5% rise, which was the highest rate since August 1982.

High inflation is a downside of strong growth, fueled in part by low interest rates and government stimulus to counter the pandemic’s impact. The Federal Reserve faces the tricky feat of tightening monetary policy enough to quell inflation and cool the economy, without throttling growth and causing a recession. Central bank officials on May 4 raised rates by a half-percentage point, the biggest increase since 2000.

A drop in the 12-month inflation rate is a possible sign that price increases are starting to ebb after hitting a 40-year high in March. However, the estimated high rate of one-month core inflation suggests that price pressures remain, said

Aneta Markowska,

chief financial economist at Jefferies LLC.

Some of the price surges fueling inflation are starting to ease. Gasoline prices fell slightly in April, after the late February Russian invasion of Ukraine sent them skyrocketing. Improving supply chains have also taken the edge off rapid price gains for vehicles—used car and truck prices were up 35.3% in March from a year earlier—and other goods. However, new sources of inflationary pressure are replacing those.

“Now what we’re starting to see is that pressure is no longer emanating from the supply side—it’s emanating from the labor-market side. And that’s less likely to go away on its own,” said Ms. Markowska. “So the Fed will have to work that much harder to get us back to 2% inflation.”

The U.S. economy added 428,000 jobs in April, the 12th straight month in which job gains exceeded 400,000. Despite the furious pace of hiring, there was still a yawning gap between job openings and the pool of available workers—a sign that demand for labor is far outstripping supply. Employers are trying to hire workers to meet increased demand, posting 11.5 million job openings earlier this spring, the highest in records dating to 2000. The number of times workers quit also rose to a record high in March, at 4.5 million.

Those dynamics are pushing up wage gains—adding multiple pressures on inflation. Some employers are raising prices to offset higher labor costs. Strong wage growth and hiring are also simply putting more income in Americans’ pockets.

The brisk pace of spending is a sign that consumers are for now able to absorb higher prices.

“We’re still at a point where consumer and business resistance to higher prices is severely reduced because no one has confidence that if they wait they’ll find the price they want later,” said

Lou Crandall,

chief economist of Wrightson ICAP. “That does give businesses more pricing power, [but] that’s probably a temporary phenomenon.”

Wendy Fisher, the owner of Good Day Pet Sitters, a boutique dog-walking and pet-sitting service in Dallas, said inflation has strained her otherwise booming business. Rents have shot up in the neighborhoods she serves, pushing her workers to areas outside the city. Higher gasoline prices have left her staff paying around twice as much for travel compared with a year ago.

“I have a really great staff and I need to retain these people—I don’t want to lose them over the cost of gas, or to a retail store where they can park their car and stay all day,” Ms. Fisher said.

In January, she reduced the geographic area she serves, cutting off business to about 40 customers. She also started distributing prepaid gas cards from a nearby

Shell

station to her workers to offset extra travel expenses. “I need gas prices to go down long term because my bottom line is really affected,” she said.

Most economists expect the 12-month inflation rate to come down in coming months, in part due to arithmetic factors known as base effects. That is, the consumer-price index rose sharply in the spring and early summer of 2021. As those earlier readings fall out of the basis for comparison, the 12-month inflation readings will likely decline, even if inflation accelerates on a monthly basis.

Supply-chain pressures have also shown signs of improving recently, among them an increase in auto production. However, China’s strict lockdowns to contain a Covid-19 outbreak are weighing on manufacturing and transportation. “A lot of this [inflation] is still driven by logistical bottlenecks and as those ease you can get some payback in some categories like autos,” Mr. Crandall said.

Higher interest rates should also start biting into demand. And for most consumers, inflation is eclipsing historically high wage gains.

Chip Miller hasn’t received a raise in five years. With inflation rapidly eroding his purchasing power, he has cut back on car trips out of state to visit relatives and started shopping around to save on groceries. “We haven’t altered our lifestyle horribly but where it does show up is my ability to put money into our retirement account,” said Dr. Miller, a 67-year-old marketing professor in Des Moines, Iowa.

The hit to savings is one of a number of retirement-related worries, as well as the decline in purchasing power for his retirement funds. Housing affordability is another. His home value has appreciated at a much lower rate than those in Raleigh, N.C., and other places where he dreams of retiring. He said those hopes are dimming as the Fed raises rates.

“The houses in places I’d like to move to are going for roughly twice what mine does, and mortgage rates have gone up 2.25 percentage points,” he said. “So I might retire to a tent, or just stay where I am.”

Write to Gwynn Guilford at [email protected]