Inflation eases for first time in months, but remains near 40-year high
April shows higher-than-expected inflation reading despite slowdown
Inflation eased in April, rising 8.3% annually, and remained near its previous 40-year-high of 8.5% set the month prior, according to the latest Consumer Price Index report released by the Bureau of Labor Statistics (BLS).
The cooling, though not by as much as some were expecting, was driven primarily due to increases in shelter, food, airline fares and new vehicles. The food index jumped 0.9% in April alone, but the energy index declined 6.1%, partially offsetting previous increases.
Rising prices are continuing to put a strain on the wallets of Americans. For example, some modest-income borrowers are being priced out of the new car market completely, unable to cope with the rising costs of a new vehicle. Meanwhile, airfare prices have surged too, as the cost of jet fuel rises.
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April’s inflation numbers higher than expected
Although inflation did ease slightly, signaling a possible peak, the slowdown was not as much as experts had anticipated. In fact, one expert said that the number is still too high despite the cooling-off.
"April marks a full year since prices started to dramatically increase, meaning that it's going to become more and more difficult for 12-month inflation to remain as elevated as it was in March," Morning Consult Chief Economist John Leer said. "The most optimistic interpretation of today's CPI release will likely be that inflation has peaked, and price growth is starting to slow.
"It's important to keep in mind that even if inflation fell in April to 6.5% or 7% relative to last year, it's still way too high," Leer added. "It's too high for businesses to confidently make investment and hiring decisions, and it's too high for consumers to continue spending."
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President Biden releases plan to fight inflation
The Federal Reserve is fighting to lower surging inflation levels by raising interest rates. So far, the central bank raised rates by 25 basis points at its March meeting and by 50 basis points at its meeting in May.
"It is expected that another 50-basis point increase will come in June," said Dawit Kebede, Credit Union National Association (CUNA) senior economist. "The monetary policy change takes effect with a lag; hence the changes may not be sufficient to meet the Fed's year-end inflation projection."
President Joe Biden has now released a plan of his own, dubbed The Biden-Harris Inflation Plan, that would raise taxes on large corporations and wealthy Americans.
"The President understands that the Federal Reserve is the institution that plays a primary role in fighting inflation," the White House said in a statement about the plan. "The President has nominated highly qualified individuals to lead the Fed, and is urging the Senate to confirm all these individuals without delay. Beyond the Federal Reserve, President Biden is taking short-, medium-, and long-term actions to lower costs for families and lower the deficit."
The tenets of the plan include lowering gas and energy costs, reducing everyday costs for American families and more. Leer, though, is skeptical that the measures would make any meaningful change toward inflation in the coming months.
"Congress and the White House have the ability to alter the long-term trajectory of inflation by enhancing the productive capacity of the U.S. economy through investments in human and physical capital, but they lack the tools to control inflation from month to month," he said. "Additionally, many of the obstacles preventing an expansion of affordable housing are at the state and local level. I appreciate the political challenges that inflation poses to the White House, but I don't think there's a lot that they can do on this issue over the next few months."
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