Prices in US outstrip forecasts in sign of inflation persisting

The figures underscore the breadth of price increases in the economy and, when combined with firm wage growth, suggest high inflation will persist for some time. PHOTO: BLOOMBERG

NEW YORK (BLOOMBERG) - US consumer prices rose by more than forecast in April, indicating inflation will persist at elevated levels for longer and keeping the Federal Reserve on the path of aggressive interest rate hikes.

The core consumer price index (CPI), which excludes food and energy, increased 0.6 per cent from a month earlier and 6.2 per cent from April 2021, according to Labor Department data released on Wednesday. The broader CPI rose 0.3 per cent from the prior month and 8.3 per cent on an annual basis, a slight cooling but still among the highest readings in decades.

Some of the largest contributors to the monthly increase included shelter, food, airfares and new vehicles. The core CPI was projected to rise 0.4 per cent from a month earlier, while the headline gauge was seen climbing 0.2 per cent, according to the median estimates in a Bloomberg survey of economists.

While the latest report shows that United States inflation has likely peaked, the figures underscore the breadth of price increases in the economy and, when combined with firm wage growth, suggest high inflation will persist for some time.

Despite the Fed raising interest rates, including the biggest rate hike since 2000 last week, global headwinds like China's lockdowns and resilient services' demand may mean a slow road to the central bank's 2 per cent goal. Fed chairman Jerome Powell signalled last week that officials are open to several half-point increases in the central bank's benchmark rate in the months ahead.

The CPI will help shape estimates for the April personal consumption expenditures price index, the Fed's preferred inflation gauge, which will be released on May 27. Inflation has put US President Joe Biden and Democrats on their heels this year, threatening their thin congressional majorities despite a robust job market and resilient consumer spending.

A key expectation for a moderation in inflation this year hinges on slowdown in goods prices as Americans shift their discretionary income to activities like travel and dining out. The rate of goods and other commodities inflation declined while service costs increased by the most since 2001 on a monthly basis.

Food prices rose 0.9 per cent in April, and were up 9.4 per cent from a year earlier. Energy costs declined in April, as gasoline prices fell 6.1 per cent from the prior month in what may prove to be just a temporary reprieve.

Gas prices have since rebounded to a record high. Shelter costs - which are the biggest services' component and make up about a third of the overall index - rose 0.5 per cent for a third straight month.

Rent of primary residence climbed 0.6 per cent, while owners' equivalent rent increased by the most since 2006.

Driven by a pickup in travel plans, the cost of hotel stays rose 1.7 per cent while airfares surged a record 18.6 per cent as airlines passed along higher fuel costs to consumers.

New-vehicle prices advanced 1.1 per cent, the most this year, while used-auto prices fell 0.4 per cent. Last week, Mr Powell said "inflation is much too high" and emphasised that the central bank understands the financial hardship for Americans.

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