Prices for consumer items skyrocketed last month, a side effect of an economy restarting its engine after months of dormancy.
The Consumer Price Index (CPI) increased 0.8% in April, accelerating from the 0.6% climb in March and marking the largest one-month jump since June 2009, according to seasonally adjusted data released by the Bureau of Labor Statistics Wednesday. The increase was four times as big as economists expected, according to a median estimate cited by Moody’s Analytics.
“This reading on inflation is not only not in the ballpark of expectations, it is not even in the zip code that the ballpark is located in,” Brean Capital senior economic advisor Conrad DeQuadros wrote in a commentary Wednesday.
- An index that measures the prices consumers pay for goods and services had its largest one-month increase since 2009.
- The core inflation rate jumped to 3.0%, up from 1.6% in March.
- The prices of used cars and trucks (10%), sporting goods (1.2%), computers (5.1%), and furniture (2.1%) are just some increases in April.
- Economists say inflation will likely continue higher in the coming months.
Compared to April 2020, the index is up 4.2%, and the core inflation rate—which excludes volatile food and energy prices—rose 3.0%, sharply accelerating from 1.6% in March. That jump is the largest month-to-month increase in the core rate since April 1982. Last spring, however, was a time of very low inflation because the economy was reeling from the effects of the COVID-19 pandemic, so the baseline for year-over-year comparison is low.
Prices for used cars and trucks drove about a third of the overall increase in inflation, rising 10%, the most since the government started keeping track in 1953. But prices climbed across the board. Travel-related items like hotels (8.8%), vehicle insurance (2.5%) and airfare (10.2%) jumped, while people staying at home also paid more, with grocery store bills (0.4%), computers (5.1%), furniture and bedding (2.1%), and sporting goods (1.2%) all increasing last month.
A surge in consumer demand, fueled by government aid and benefiting from a decline in pandemic anxiety, is overwhelming the supply chain, pushing inflation higher. Manufacturers say they’re having trouble finding materials and workers, which is slowing production.
Also contributing to the sharp rise in inflation is the fact that there was barely any inflation in April 2020, when the pandemic triggered an economic crash. These so-called base-effects can distort the picture by making all aspects of the recovery seem larger.
Inflation will likely continue higher in coming months, economists said, because of these base effects, the continued reopening of the economy, and the impact of businesses passing on their own higher materials costs to consumers.
The Federal Reserve has acknowledged that prices are going up, but says the surge in inflation should be temporary. Some economists say they are unsure whether inflation will ease as quickly as the Fed believes.
The Fed traditionally tries to keep core inflation at 2% over time, but policymakers have said that right now, it will aim for “moderately above” 2% for “some time” to allow the economy to rebuild.