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Consumer prices in the United States rose again in April, and a measure of underlying inflation remained high, suggesting that rising costs could continue for several months.
Prices rose 0.4 percent monthly from March to April, the government said on Wednesday, up from 0.1 percent from February to March. Compared to the previous year, prices climbed 4.9 percent, down slightly from March’s year-over-year increase.
The nation’s inflation rate has cooled steadily since peaking at 9.1 percent last June, but remains well above the Federal Reserve’s two percent target rate.
The Fed pays particular attention to so-called core prices, which exclude volatile food and energy costs and are considered a better measure of long-term inflation trends.
Core prices rose 0.4 percent from March to April, the same as February to March. It was the fifth month in a row that core prices rose 0.4 percent or more. The increase in the pace was higher than the Fed’s two percent target.
Compared to a year ago, core prices rose 5.5 percent, just below the annual increase of 5.6 percent in March.
Economists say the decline in U.S. inflation since last summer may be an easy phase to conquer inflation.
The horrendous supply chain that left many grocery shelves empty and delayed deliveries of furniture, cars, electronics and many other items has been resolved. Gas prices have fallen since above $5 US per gallon nationally after Russia’s invasion of Ukraine, though they rose again in April after OPEC agreed to cut oil output.
Service prices are still rising
But unlike the price of goods, the cost of services — from restaurant food to car insurance, dental care to education — is still rising.
The main reason is that companies need to raise wages in these industries to find and retain workers. Federal Reserve officials have said that fast-rising wages, while good for workers, have led to higher costs in service industries, as labor makes up a significant portion of those industries’ costs.
Last week, the Fed signaled it might pause rate hikes after implementing 10 straight hikes, allowing it to take time to assess how higher borrowing costs affect the economy. The full economic impact of these increases may not be seen for months.
For more than two years, high inflation has been a significant burden for American consumers, a threat to the economy and a frustrating challenge for the Fed. The central bank has raised the key interest rate by five percentage points from March 2022.
In addition to making borrowing more expensive for consumers and businesses, the higher rates have led to the collapse of three major banks in the past two months and a possible pullback from bank lending. The result could be a weaker economy.
Worse still, the government’s debt ceiling could be breached as early as June, and Republicans in Congress have refused to raise the cap unless President Joe Biden and congressional Democrats agree to sharp spending cuts. If the debt ceiling is not raised in time, the country will default on the debt, a scenario that could lead to a global economic crisis.
When they met last week, Fed policymakers agreed to raise the benchmark rate by a quarter, to about 5.1 percent – the highest rate in 16 years.
This means that for the first time since the pandemic began, the central bank rate is now higher than the official inflation rate.
Most economists think the rate hike will, over time, have the intended effect. But many are also worried that the increase will hurt the economy to the point of recession this year.
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