WASHINGTON: US consumer prices increased by the most in nearly 12 years in April as booming demand amid a reopening economy pushed against supply constraints, which could add fuel to financial market fears of a lengthy period of higher inflation.
The report from the Labour Department on Wednesday also showed a strong building up of underlying price pressures, extending a selloff on Wall Street. Most economists were, however, unwavering in their belief that the surge in prices would be temporary, with bottlenecks in the supply chain expected to ease. Federal Reserve Chair Jerome Powell shares similar views.
“This is not a sign of an inflation problem,” said Robert Barbera, director of Johns Hopkins University’s Center for Financial Economics. “We have the capacity to produce this stuff, we simply need time to get things back on line.”
The consumer price index jumped 0.8% last month, the largest gain since June 2009. The CPI rose 0.6% in March. A record 10.0% surge in prices of used cars and trucks accounted for over a third of the increase in the CPI last month. That followed a 0.5% rise in March. Motor vehicle production has been hampered by a global semiconductor shortage, boosting demand for used automobiles.
Food prices increased 0.4%, lifted by solid gains in the costs of fruits and vegetables, dairy products, meats, fish and eggs. It also cost more to dine out. But gasoline prices fell 1.4% after accelerating 9.1% in March.
The Fed slashed its benchmark overnight interest rate to near zero and is pumping money into the economy through monthly bond purchases. The US central bank has signaled it could tolerate higher inflation for some time to offset years in which inflation was lodged below its 2% target, a flexible average.
The Fed’s preferred inflation measure, the core personal consumption expenditures price index is at 1.8%.
Demand is being driven by nearly $6 trillion in government relief since the Covid-19 pandemic started in the United States in March 2020 and the vaccination of more than a third of the population. There are concerns inflation could linger amid reports that companies are raising wages as they compete for scarce workers.
Though job openings are at a record 8.1 million and nearly 10 million people are officially unemployed, companies are scrambling for labour. Generous unemployment benefits, fears of contracting Covid-19, parents still at home caring for children and pandemic-related retirements have been blamed for the disconnect. Average hourly earnings jumped in April.
Economists are keeping an eye on fairly high inflation expectations, which some say could become a self-fulfilling prophecy.
Excluding the volatile food and energy components, the CPI soared 0.9%, the largest gain since April 1982. The so-called core CPI rose 0.3% in March. It was boosted by a 10.2% surge in the prices of airline tickets as well as an 8.8% jump in the costs of rooms in hotels and motels.
Prices for new motor vehicles increased a solid 0.5%. Consumers also paid more for recreation, motor vehicle insurance and household furnishings. But healthcare costs edged up 0.1% for a second straight month.
In the 12 months through April, the core CPI jumped 3.0%. That was the biggest increase since January 1996 and followed a 1.6% advance in March.
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