Culture

US economy

US inflation rate slows but remains close to

40-year high
Consumer price index reveals costs rising by a monthly rate of 0.3% in
April, down from 1.2% in March, the first fall since August 2021

Wed 11 May 2022 17.52 BST

Price rises slowed in the US in April but the annual inflation rate remained close to a 40-
year high, leaving many Americans struggling to afford necessities including food,
shelter and fuel.

The latest consumer price index (CPI) figures – which measure a broad range of goods
and services – showed prices rising by a monthly rate of 0.3% in April, down from 1.2%
in March, the first fall since August 2021.

But it is still too early to say whether inflation has peaked. At 8.3% the annual rate of
inflation in April was down from 8.5% in March but remains at a level unseen since the
1980s. Over the year the CPI’s food index increased 9.4%, the largest 12-month increase
since April 1981. The so-called core-price index – which excludes the volatile categories
of food and energy – increased 0.6% on the month, up from March’s 0.3% gain.

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The figures come as the Federal Reserve is moving to sharply increase interest rates in
an attempt to bring prices back under control. The pace of rate rises, and fears that they
may trigger a recession, have spooked investors and sent stock markets reeling.

Soaring demand and a lack of supply thanks to the pandemic have led to price rises
across a broad swath of goods and services. Air fares are up 40% over the last three
months. A booming house market has made housing unaffordable for many
Americans, especially people of color, and 49% of people recently told Pew Research
that affordable housing is a large problem in their community.

Randall Kroszner, an economics professor at the University of Chicago and former Fed
governor, said the sharp rise in core inflation would worry the Fed. “That is where you
look for evidence that inflation is becoming entrenched,” he said.

Kroszner said global issues including the war in Ukraine and China’s Covid woes had
combined with rising rates to deliver a “one-two punch” to the US economy. He believes
the chances of the US entering a recession have risen and that the housing and jobs
markets may be the next to suffer.
“I’m generally an optimist but this is challenging,” he said.

The rising cost of living has become a leading political issue as the US prepares for
November’s midterm elections. Rising prices have battered Joe Biden’s approval ratings.
This week an Investors Business Daily/TIPP poll found that Biden’s approval had fallen
to 39%, approaching his previous record low of 38% set in February, and confidence in
the US economy was close to an eight-year low.

On Tuesday, Biden said his administration was doing all it could to tackle inflation. “I
want every American to know that I’m taking inflation very seriously,” he said in
remarks from the White House. “It’s my top domestic priority.

The Biden administration has made attempts to bring down prices. In March the White
House announced plans to release up to 1m barrels of oil a day from the strategic
reserve, in an attempt to dampen high gasoline prices exacerbated by the war in
Ukraine. But gas prices remain elevated at a national average of $4.37 a gallon
compared with $2.96 a year ago, according to AAA.

Republicans have blamed Biden’s stimulus programs for rising prices, a claim he
disputes. The president said his policies had “helped not hurt” the nation’s economic
outlook.

MIT economics professor Kristin Forbes said the US recovery had shown the US
economy lacked skilled workers in industries where demand for jobs was high, pushing
up wages – a problem that also afflicted the UK in the wake of the pandemic.

The former Bank of England policymaker told a committee of MPs in the UK parliament
that she expected inflation in the US to fall, especially once increases in borrowing costs
feed through into more expensive mortgages and loans.

However, she said the UK faced an acute inflationary spiral that would continue into the
autumn because Britain was the only country affected by all six drivers of global
inflation. Inflation is running at 7% in the UK, but is forecast by the Bankto exceed 10%
later this year.

She highlighted the impact on the UK of higher energy prices, a falling exchange
rate, trade restrictions that pushed up goods prices, a decade of modest inflation going
into the pandemic, expectations among businesses and consumers of much higher
inflation in a year’s time and a tight labour market, forcing wages higher.

“The UK is the only country to tick every box with inflation pressures coming from all
six areas,” she said.

https://www.theguardian.com/business/2022/may/11/us-inflation-consumer-price-index-
figures#:~:text=At%208.3%25%20the%20annual%20rate,month%20increase%20since%20April%201981.