April inflation accelerated at the fastest pace in more than 12 years as the US economy recovered and energy prices rose, the Labor Department reported Wednesday.
The consumer price index, which measures a shopping basket as well as energy and housing costs, rose by 4.2% compared to the previous year. A Dow Jones poll had expected an increase of 3.6%. The monthly growth was 0.8% compared to the expected 0.2%.
Excluding volatile food and energy prices, the core CPI rose 3% over the same period in 2020 and 0.9% monthly. The respective estimates were 2.3% and 0.3%.
The rise in annual headline CPI was the fastest since September 2008, while the monthly rise in core inflation was the largest since 1981.
Overall, energy prices rose 25% year over year, including a 49.6% increase for gasoline and 37.3% for heating oil. It did so despite the fact that most energy categories saw a decline in April.
Pump prices, which fell 1.4% in April, resumed their rise in May. According to the AAA, the national average is back above $ 3 per gallon for the first time since November 2014. Further increases are likely due to Friday’s cyberattack that shut down the main transmission line of the Colonial Pipeline from Houston to New Jersey.
Used car and truck prices, viewed as a key inflation indicator, rose 21%, including a 10% increase in April alone. Shelter, another key component of CPI, rose 2.1% year over year and 0.4% for the month.
Aside from soaring prices, one of the main reasons behind the big annual profit was the base effects, which meant inflation was very low at that point in 2020 as the Covid pandemic caused a widespread shutdown of the US economy. Year-on-year comparisons will be skewed for a few months due to the impact of the pandemic.
Because of this, Federal Reserve policymakers and many economists are rejecting the current round of numbers as temporary, with the expectation that inflation will settle around the central bank’s target of 2% later this year.
Fed officials have repeatedly stated that they will not raise interest rates or withdraw monthly bond purchases until inflation averages 2% over an extended period of time.
“With the cyclically sensitive components of the CPI still rising at a modest pace, we doubt this report will change officials’ view that inflationary pressures are” largely transitory, “wrote Michael Pearce, senior US economist at Capital Economics. “It’s just that there is a lot more ‘ephemeral’ than they expected.”
Exchange futures briefly hit the session lows after the CPI numbers were released, suggesting a negative open on Wall Street. Government bond yields were mostly higher.
Price spikes have also occurred due to supply shortages caused by a number of factors, from manufacturing problems with the ubiquitous semiconductors in electronics products, to the blockade of the Suez Canal in March, to increasing demand for a variety of raw materials.
Sawn timber prices alone rose by 124% in 2021 due to the continuing demand for building materials. Copper, which is often viewed as a proxy for economic activity, is up nearly 36%.
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