Inflation rose to 8.3% in April from a year ago, and remains near 40-year highs

Inflation picked up again in April, and a continuing rally that has pushed consumers to the brink and threatens economic expansion, the Bureau of Labor Statistics reported on Wednesday.

The Consumer Price Index, a broad measure of the prices of goods and services, rose 8.3% from a year ago, well above Dow Jones’ estimate of an 8.1% gain. That’s a slight drop from the March peak, but still close to the highest since the summer of 1982.

Removing volatility in food and energy prices, the so-called core CPI still rose 6.2%, against expectations of a 6% increase, apparently dashing hopes that inflation peaked in March.

Price gains also mean that workers have continued to fall. Real wages adjusted for inflation declined 0.1% during the month despite a nominal 0.3% increase in average hourly earnings. Over the past year, real earnings are down 2.6% even though average hourly earnings are up 5.5%.

Inflation was the single biggest threat to the recovery that began early in the pandemic and in 2021 the economy saw its biggest one-year level of growth since 1984. Rising prices at the pumps and in grocery stores was one problem, but inflation was spreading beyond these two areas in housing and sales Automobiles and a host of other fields.

Fed officials have responded to the problem with rate hikes twice so far this year and pledges of more until inflation hits the central bank’s 2% target. However, Wednesday’s data shows that the Fed has a big task ahead.

Monthly gains were also above expectations – 0.3% on the core CPI versus estimates of 0.2% and a 0.6% increase for core, versus expectations for a 0.4% rise.

Those readings came despite a 2.7% drop in energy prices for the month, including a 6.1% drop for gasoline. The BLS food index rose 0.9% in April, to counteract the slowdown in energy. On a 12-month basis, energy costs remained high 30.3% while food prices increased 9.4%, according to unadjusted data.

Compounding concerns is the continued rise in housing costs.

The Shelter Index, which makes up about a third of the CPI weighting, is up another 0.5%, matching its rally over the past two months, and is up 5.1% year over year, its fastest gain since April 1991.

Stock market futures responded negatively to the report, turning negative after being positive earlier in the morning. Government bond yields rose, pushing the yield on the benchmark 10-year Treasury to nearly 3.03%.

Markets have been looking for signs that the 8.5% CPI reading for March will reach peak inflation in the era of the pandemic.

However, the April report showed that “this is yet another surprise for bullish inflation and suggests the deceleration will be very slow,” said Sima Shah, chief strategist at Principal Global Investors.

Auto sales were also a significant contributor to inflation as supply chain issues, particularly with critical semiconductors for vehicle operating systems, drove prices up. Used car prices fell 0.4% during the month but new car prices rose 1.1%. Prices are up 22.7% and 13.2% for the two categories, respectively, over the past year.

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