As I’m sure you are all aware, U.S. consumer prices surge as we see increased prices for just about everything. In fact, U.S. consumer prices climbed in April by the most we’ve since 2009, outpacing estimates and escalating the debate about how long inflationary pressures will last.
The consumer price index increased 0.8% from the prior month, reflecting gains in nearly every major category and a sign that growing demand is giving companies the freedom to pass on higher costs. In addition, the gain in the overall CPI was twice as much as the highest projection, causing forecasters to struggle as they try to get a handle on the rapidly reopening economy.
Prices for motor vehicles, transportation services and hotels visits showed sharp price increases as businesses that were hit the hardest by the pandemic reopen as vaccinated people begin to travel and resume social activities.
According to Michael Gapen, chief U.S. economist at Barclays Plc., “Transitory pandemic influences clearly contributed to the surprise but there’s residual firmness in core inflation that’s hard to ignore,” and aside from the reopening effect, “there was still some residual firmness that suggests risks around inflation in the near term are still skewed to the upside.”
Although distorted in comparison to the pandemic depressed index in April 2020, the annual CPI was up to 4.2%, the highest since 2008. This phenomenon – known as the base effect – will likely skew future figures and muddle the ongoing inflation debate.
At the same time, annualized inflation over the past three and six months has shown clear acceleration. While Fed officials and economists acknowledge the temporary boost, its unclear whether a more durable pickup in inflationary pressures is underway against climbing commodities costs, trillions of dollars in government economic stimulus and emerging signs of higher labor costs.
A recent report shows insight into price pressures across parts of the economy. Wages have shown signs of picking up, and supply chain challenges have elongated delivery times and driven material prices higher. While this is challenging for producers, swelling consumer demand has given companies more confidence and the freedom to pass along some of the new costs. If sustained, the production bottlenecks could post a risk of an acceleration in consumer inflation.
As we continue to experience the effects of reopening our economy, its important to keep a close eye on inflation and the upward pressure we’re seeing on pricing.
Click here for more details on the reopening effect, and how its effecting our economy.