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Signs of Inflation Could Be Transitory, says FED
US consumer prices rose 4.2% in April from a year ago, up from the 2.6% gain in March and more than economists expected. Some of the causes:
Some officials, like Fed Chair Jerome Powell, think the run-up in prices is directly related to the winding down of the pandemic. They argue that the quirks of the 2021 economy, like the fact that uber-expensive lumber is adding nearly $36,000 to the price of a new home, is mainly what’s driving inflation. Used car prices jumped 10% in April and accounted for more than a third of the monthly increase in consumer prices. Many officials are betting that once the economy irons out the wrinkles, price growth will settle down to more typical levels.
The only CPI reading that matters is the next one. Future readings will better help policymakers understand whether inflation is less “transitory” than it appears to be.
As a result, the Federal Reserve is calling recent inflation increases are "transitory", which is its way of saying there is no need to change monetary policy and don’t expect prices to continue to rise at the recent rapid clip. But that doesn't mean higher inflation is controlled. The M2 measure of the money supply is up 24% from a year ago, the federal government has ramped up "stimulus" efforts, and employers need to lift wages rapidly to compete with abnormally high unemployment benefits. The math says inflation above the Fed's 2% target is likely to be with us for some time. Meanwhile, higher energy inflation in May is due to the cyber-attack on the Colonial Pipeline, which carries about 45% of the fuel consumed on the East Coast. Inflation will be a front and center issue for markets and policymakers in 2021 and beyond.
The Consumer Price Index (CPI) increased 0.8% in April, well above the consensus expected 0.2%. The CPI is up 4.2% from a year ago. Food prices increased 0.4% in April, while energy prices fell 0.1%. The "core" CPI, which excludes food and energy, rose 0.9% in April, coming in well above the consensus expected 0.3%. Core prices are up 3.0% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – were unchanged in April and are down 3.7% in the past year. Real average weekly earnings are down 1.4% in the past year.
Consumer prices rose in April at the fastest pace in more than a decade as supply chains struggled to keep up with rapidly rising demand. The April rise of 0.8% comes after increases of 0.6% in March and 0.4% in February, bringing the three-month change to a 7.2% annual rate, the fastest increase since 2008. Energy prices declined 0.1% in April while food prices, also sometimes a source of volatility, rose a relatively moderate 0.4%. Instead, it was "core" prices, which exclude food and energy, that led overall consumer prices higher in April. Core prices rose 0.9%, the largest monthly increase since 1982. The leading driver of the increase in core prices was used cars and trucks, which rose 10% in just one month, the largest gain ever for the series, which dates back to 1953. Other key contributors were airfares
(10.2%), hotels/motels ( 8.8%), and car and truck rentals ( 16.2%). Overall consumer prices are now up 4.2% versus a year ago, while "core" prices are up 3.0%.
US consumer prices rose 4.2% in April from a year ago, up from the 2.6% gain in March and more than economists expected. Some of the causes:
- Supply chains are broken: From chicken wings to diapers to, most recently, gasoline, supply is not meeting demand.
- The pandemic is ending: 35% of the US population is fully vaccinated, and they’re making up for lost time by traveling, buying clothes that aren’t sweatpants, and dining out.
- Stimulus abounds: The government has rained payments on Americans to help them through the last year of high unemployment levels.
Some officials, like Fed Chair Jerome Powell, think the run-up in prices is directly related to the winding down of the pandemic. They argue that the quirks of the 2021 economy, like the fact that uber-expensive lumber is adding nearly $36,000 to the price of a new home, is mainly what’s driving inflation. Used car prices jumped 10% in April and accounted for more than a third of the monthly increase in consumer prices. Many officials are betting that once the economy irons out the wrinkles, price growth will settle down to more typical levels.
The only CPI reading that matters is the next one. Future readings will better help policymakers understand whether inflation is less “transitory” than it appears to be.
As a result, the Federal Reserve is calling recent inflation increases are "transitory", which is its way of saying there is no need to change monetary policy and don’t expect prices to continue to rise at the recent rapid clip. But that doesn't mean higher inflation is controlled. The M2 measure of the money supply is up 24% from a year ago, the federal government has ramped up "stimulus" efforts, and employers need to lift wages rapidly to compete with abnormally high unemployment benefits. The math says inflation above the Fed's 2% target is likely to be with us for some time. Meanwhile, higher energy inflation in May is due to the cyber-attack on the Colonial Pipeline, which carries about 45% of the fuel consumed on the East Coast. Inflation will be a front and center issue for markets and policymakers in 2021 and beyond.
The Consumer Price Index (CPI) increased 0.8% in April, well above the consensus expected 0.2%. The CPI is up 4.2% from a year ago. Food prices increased 0.4% in April, while energy prices fell 0.1%. The "core" CPI, which excludes food and energy, rose 0.9% in April, coming in well above the consensus expected 0.3%. Core prices are up 3.0% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – were unchanged in April and are down 3.7% in the past year. Real average weekly earnings are down 1.4% in the past year.
Consumer prices rose in April at the fastest pace in more than a decade as supply chains struggled to keep up with rapidly rising demand. The April rise of 0.8% comes after increases of 0.6% in March and 0.4% in February, bringing the three-month change to a 7.2% annual rate, the fastest increase since 2008. Energy prices declined 0.1% in April while food prices, also sometimes a source of volatility, rose a relatively moderate 0.4%. Instead, it was "core" prices, which exclude food and energy, that led overall consumer prices higher in April. Core prices rose 0.9%, the largest monthly increase since 1982. The leading driver of the increase in core prices was used cars and trucks, which rose 10% in just one month, the largest gain ever for the series, which dates back to 1953. Other key contributors were airfares
(10.2%), hotels/motels ( 8.8%), and car and truck rentals ( 16.2%). Overall consumer prices are now up 4.2% versus a year ago, while "core" prices are up 3.0%.
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