US inflation hit 8.3% last month but is slowing from its highest level in 40 years

Inflation slowed in April after seven months of steady gains, a tentative sign that price increases could peak while putting financial pressure on US households.

Consumer prices jumped 8.3% last month from 12 months earlier, the Labor Department said Wednesday. That was below the 8.5% year-over-year rise in March, which was the highest rate since 1981.

Month-over-month prices rose 0.3% from March to April, a still high rate but the smallest increase in eight months.

Consumer prices rose 1.2% from February to March, mainly due to a sudden rise in gasoline prices triggered by Russia’s invasion of Ukraine.

Nationally, the price of a gallon of regular gasoline hit a record high of US$4.40, according to the American Automobile Association (AAA), although that figure is not adjusted for inflation. The high price of oil is the main factor. Benchmark US crude sold around $100 a barrel on Tuesday. Gas had fallen to around $4.10 a gallon in April, after hitting $4.32 in March.

Inflation becomes a political challenge

Beyond the financial strain on households, inflation poses a serious political problem for President Joe Biden and congressional Democrats in the midterm election season, with Republicans saying the 1 $.9 trillion from Biden last March overheated the economy by flooding it with stimulus checks, improved unemployment assistance and child tax credit payments.

On Tuesday, Biden sought to seize the initiative and declared inflation “the No. 1 problem facing families today” and “my national priority.”

President Joe Biden speaks about inflation in the South Court Auditorium of the White House complex in Washington, Tuesday, May 10, 2022. (Manuel Balce Ceneta/AP Photo)

Biden blamed chronic supply chain groans related to the rapid economic rebound from the pandemic, as well as Russia’s invasion of Ukraine, for triggering inflation. He said his administration will help mitigate price hikes by reducing the government’s budget deficit and promoting competition in industries, like meatpacking, that are dominated by a few industry giants.

Yet further disruptions overseas or other unforeseen issues could still push US inflation to new highs. If the European Union decides, for example, to cut off Russian oil, gas prices in the United States will probably accelerate. China’s COVID lockdowns are compounding supply issues and hurting growth in the world’s second-largest economy.

Previous signs that US inflation could peak did not last. Price increases slowed last August and September, suggesting at the time that higher inflation might be temporary, as many economists – and Federal Reserve officials – had suggested.

But prices rose again in October, prompting Fed Chairman Jerome Powell to start shifting policy towards higher rates.

More hiking fares to come

This time, however, several factors point to a spike in inflation. Natural gas prices, which soared in March following Russia’s invasion of Ukraine, fell on average in April and likely dampened inflation. Used car prices are also expected to have fallen last month. Automakers’ supply chains have crumbled a bit and new car sales have increased.

While food and energy have suffered the worst price spikes of the past year, analysts often watch the core figure for a sense of underlying inflation. Core inflation also generally increases more slowly than overall price increases and may take longer to decline. Rents, for example, are rising at a historically rapid rate, and there are few signs that this trend is reversing any time soon.

The unexpected persistence of high inflation prompted the Fed to embark on what could become its fastest series of interest rate hikes in 33 years. Last week, the Fed raised its benchmark short-term rate by half a point, its biggest increase in two decades. And Powell signaled that more rate hikes just as steep are to come.

The Fed Powell is looking to accomplish the notoriously difficult – and risky – task of cooling the economy enough to slow inflation without causing a recession. Economists say such an outcome is possible but unlikely with such high inflation.

Meanwhile, by some metrics, Americans’ wages are rising at the fastest rate in 20 years. Their higher wages enable more people to meet, at least in part, higher prices. But employers typically respond by charging customers more to cover their higher labor costs, which, in turn, increases inflationary pressures.

Last Friday’s jobs report for April included hourly wage data that suggested wage gains were slowing, which, if continued, could help dampen inflation this year.