CPI report: Inflation slowed more than expected in April, despite tariff-related price pressures building CNN Business

At the onset of the pandemic, the U.S. government unleashed waves of supportive financial measures to fortify the economy as businesses shut down. The relative importance of these factors, and others, in contributing to US inflation that began in mid-2021 is an open question. Consumer demand was stimulated, in part, due to high levels of fiscal spending and monetary policy enacted to mitigate the economic impacts of the public health emergency. Supply of goods tightened as trade restrictions and shelter-in-place delayed production and transportation. As economies opened back up in 2021 and beyond, low unemployment put upward pressure on trading signals wages and, thus, prices.

• Still, the report also showed the “first clear evidence of upward pressure” on goods prices from tariffs, noted Samuel Tombs, chief US economist for Pantheon Macroeconomics.
• This close relationship is grounded in economic theory and has been observed in practice in many countries around the world over many years.
• The personal consumption expenditures (PCE) index is another measure of inflation that tracks price changes in the amount spent on consumer goods and services exchanged in the U.S. economy.
• For many families, these rising costs can lead to difficult financial decisions.
• From 2010 to 2019, the government bought $4 trillion of bonds and issued $4 trillion of new money in return.
• Moreover, since this is an election year, you can be sure Congress will be proposing large spending measures to garner votes.

The cost of hospital services jumped 1.6% just from December to January. But as with many Americans, higher prices have caused him to worry about the future. He wonders how his oldest of three daughters, who wants to become a schoolteacher, will live on an educator’s salary with costs having risen so high. Bill Milligan of Atlanta said he was stunned last month to find that the cost of insuring one of his cars had soared nearly 30% compared to six months earlier.

Demand-Pull Inflation

On Thursday, the Bureau of Labor Statistics will release the Producer Price Index for April, providing a look at wholesale-level inflation. Economists anticipate that tariffs likely will make a bigger splash on physical and virtual store shelves in May and June. However, data set to be released later this week could give a glimpse as to what, if anything, could be coming down the pike.

Also, business owners can deliberately withhold supplies from the market, allowing prices to rise favorably. However, companies can also be hurt by inflation if it results from a surge in production costs. Companies are at risk if they cannot pass on the higher costs to consumers through higher prices. If foreign competition, for example, is unaffected by the production cost increases, their prices wouldn’t need to rise.

As recently as September, Fed policymakers had been divided over whether to raise rates even once this year. But last month, the central bank signaled that it expects to raise its short-term benchmark rate, now pinned near zero, three times this year in an effort to quell inflation. And many private economists expect as many as four Fed rate hikes in 2022. Demand-pull inflation can be caused by strong consumer demand for a product or service. When there’s a surge in demand for a wide breadth of avatrade forex broker review goods across an economy, their prices tend to increase. While this is not often a concern for short-term imbalances of supply and demand, sustained demand can reverberate in the economy and raise costs for other goods, resulting in demand-pull inflation.

April inflation report shows prices grew at slowest pace since 2021

• Companies also play a role in inflation, especially if they manufacture popular products.
• The White House has also noted the inflationary challenges faced by other countries, arguing this is not an issue of policy but a difficult period driven by the pandemic that many nations are facing.
• The Federal Reserve has kept its interest rate – the federal fund rate – much lower than in other recent years.
• The International Monetary Fund has forecast that consumer prices in the world’s advanced economies will jump 5.7 percent this year, the most since 1984.
• In the next crisis, the government will want to borrow and print maybe $10 trillion to bail out the financial system again, keep businesses and people afloat, and maybe finance a war.

She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies. Get an email with the top market-moving news in bullet point format, for free. This $5 trillion stimulus package was primarily deployed in 2020 and 2021, increasing the money supply by 25.7% in 2020 and another 11.4% in 2021. In 2020, in response to the COVID-19 shutdowns and to stave off a potential recession, the Federal Reserve printed and injected $5 trillion into the economy. All 10 apples are sold for a total cost of $25, leaving $15 left to spend on 10 oranges. These are specific cases of what is commonly known as “cost-push” inflation.

What is causing inflation? Economists point fingers at different culprits

Most of that increase occurred between 2021 and 2023, after inflation climbed. The 57% currently worried about their standard of living essentially matches the high of 58% recorded in 2011 during a period of slow GDP growth and high unemployment after the Great Recession. As would be expected, lower-income Americans worry more about these financial challenges than middle- and upper-income Americans do. The largest gap in worry between lower- and upper-income people is for paying normal monthly bills, something 71% of those with lower incomes and 24% of those with upper incomes worry about. One issue — investment returns — sparks similar levels of worry across the three income groups. Another driver of high prices has been housing costs, particularly the price of home ownership.

Measures of Inflation

Mr. Trump has also announced tariffs, such as his April 2 „Liberation Day“ levies, and then backed off from them. On April 9, he hit the pause button with a 90-day delay, scaling back the tariffs to a 10% rate. “But we think an August cut is still highly likely, and the quarterly pace of rate cuts can continue through this year and into 2026. Pantheon Macroeconomics believes inflation will stay at around 3.5% for the rest of 2025 and not fall below 3% until April next year.

The latest inflation reading is „likely a welcome reprieve for the Fed; however, the larger tariff-related price adjustments are likely to come over the next few months,“ Goldman Sachs analysts said in a note to clients Tuesday. „Consequently, we still anticipate them remaining on the sidelines in the near term.“ The bank expects the bulk of the tariff inflation impacts to show up in the May through August inflation reports and slowly fade away afterward. Sharif said those increases likely reflected, in part, sharp pay gains in recent years for nurses and other in-demand medical workers, such as anesthesiologists and radiologists. “The very low level on searches of Google for phrases including ‘flights’ in April … suggests that booking and prices will remain subdued in May,” he wrote.

Household furnishings and appliances leapt by 1%, and computer and telephone prices rose by 0.3%, a turnabout from a 0.6% average drop during the previous 12 months, he added. The Core CPI gauge, which strips out food and energy, rose 0.2% from March and remained at an annual rate of 2.8%, according to Tuesday’s report. Investec Economics expert Philip Shaw is more optimistic, as he believes wage growth and lower energy prices over the summer will bring CPI down.

One sign of possible cost-push inflation is rising commodity prices of major production inputs, such as oil and metals. For example, if the price of copper rises, companies that use copper to make their products might increase the prices of their goods. If the demand for the product is independent of the demand for copper, the business will pass on the higher costs of raw materials to consumers. The result is higher prices for consumers without any change in demand for the products consumed.

The result for consumers and businesses could be a longer wait for relief on borrowing costs, as the Federal Reserve’s benchmark rate helps determine what banks, credit card companies and other lenders charge borrowers. Data released last week hycm review by the Bureau of Labor Statistics showed that inflation had climbed 8.5 percent in March compared to a year ago — the largest increase since 1981. There were gains nearly across the board, with energy, shelter and food prices all soaring at record rates. Inflation often affects lower-income households disproportionately, as they spend a higher percentage of their income on essential goods and services.

Primarily, the bank believes that tariff-induced inflation won’t be as extreme as what consumers saw in 2022. David Mericle, the firm’s chief US economist, said tariffs would only raise consumer prices by 2% over the next year and a half. The majority of the change in PCE will come from the direct impact of increased import prices and higher domestic production costs. The smaller magnitude of price increases should prevent inflation from becoming psychologically entrenched in setting prices and wages. Just as expansionary fiscal policy can spur inflation, so too can loose monetary policy.

If we come to the same answer, it is from a totally different background. He backed the “supply shock” excuse and predicted it would be “transitory.” Supply shocks are relative price movements, not inflation. Megan Greene, chief economist at the Kroll Institute, suggested that inflation and the overall economy will eventually return to something closer to normal. The price squeeze is escalating pressure on the Fed to shift more quickly away from years of easy-money policies. And it poses a threat to President Joe Biden, congressional Democrats and their ambitious spending plans.

The Federal Reserve, meanwhile, has signaled its intent to raise interest rates to address inflation. That would likely help tamp down consumer spending on large purchases and further aid in cooling down the economic situation. What’s more, the Fed’s pivot toward an aggressively anti-inflationary policy could eventually reduce consumer demand. Inflation itself is eroding purchasing power and might force some consumers to shave spending.