US consumer prices remain high, showing inflationary pressures persist | economy and business

Consumer prices in the United States rose again in April and measures of underlying inflation remained high, suggesting rising costs could continue for months. Prices rose 0.4% in March-April, the government said on Wednesday, up from 0.1% in February-March. Year-on-year, prices rose 4.9%, down slightly from March’s year-on-year increase.

The country’s inflation rate has steadily cooled since peaking at 9.1% last June, but remains well above the Federal Reserve’s target rate of 2%. The Fed pays particular attention to so-called core prices, which exclude volatile food and energy costs and are considered a better indicator of longer-term inflation trends. Core prices rose 0.4% from March to April, the same as from February to March. It was the fifth straight month that core prices have risen by 0.4% or more. Increases at this rate are well above the Fed’s 2% target.

Year-over-year, core prices rose 5.5%, just short of a 5.6% annual increase in March.

Economists say the overall slowdown in US inflation since last summer may prove to be a relatively easy phase in the nation’s effort to fight inflation.

The supply chain mess that left many grocery shelves empty and delayed the delivery of furniture, cars, electronics and numerous other goods has been resolved. Gas prices have fallen since topping $5 a gallon nationwide after Russia’s invasion of Ukraine, but rose again in April after OPEC agreed to cut oil production.

But unlike the prices of goods, the costs of services – from restaurant meals to car insurance, dental care and education – are still rising sharply. A key reason for this is that companies in these industries have had to raise wages to attract and retain workers. Federal Reserve officials say that while rapidly rising wages are good for workers, they have contributed to higher costs in service industries because labor accounts for a significant portion of those industries’ spending.

Last week, the Fed signaled it might hold rate hikes after enforcing 10 straight rate hikes, so it might take time to assess how higher borrowing costs have affected the economy. However, the full economic impact of rate hikes may not be apparent for months.

For more than two years, high inflation has been a significant burden for American consumers, a threat to the economy, and a frustrating challenge for the Fed. The central bank has raised interest rates by a whopping 5 percentage points since March 2022 to try to bring inflation back to its 2% target.

Not only have these higher rates made borrowing far more expensive for consumers and businesses, they have also contributed to the collapse of three major banks over the past two months and a likely fall in bank lending. The result could be a further weakening of the economy.

Even more threatening, the government’s debt ceiling could be breached by early June, and congressional Republicans refuse to raise the ceiling unless President Joe Biden and congressional Democrats agree to sharp spending cuts. If the debt ceiling is not raised in time, the nation would default on its debt, a scenario that could trigger a global economic crisis. When they met last week, Fed policymakers agreed to raise interest rates by a quarter point to about 5.1% – the highest level in 16 years. The Fed’s interest rate hikes, intended to slow spending, growth and inflation, have pushed up the cost of mortgages, auto loans, and credit card and business borrowing.

Most economists believe that rate hikes will have their intended effect over time. However, most also fear that the rate hikes will weaken the economy enough that it slips into recession sometime this year.

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