May 19, 2022

U.S. Inflation Is Still Climbing Rapidly

Rents picked up by 0.6 percent in April from March, and a measure of housing costs that uses rents to estimate the cost of owned housing climbed 0.5 percent, up from 0.4 percent the prior month. The pickup in housing costs is particularly important, because they make up about a third of the overall inflation index.

“Domestically generated inflationary pressures remain strong,” Andrew Hunter, senior U.S. economist at Capital Economics, wrote after the report was released.

Part of the increase in core inflation in April owed to trends that should not last, most notably a big pop in airfares as travel demand surges after the latest wave of the coronavirus. Even so, Ms. Rosner-Warburton said she expected annual C.P.I. inflation to remain 5.1 percent at the end of the year, far above levels that prevailed before the pandemic.

The Fed aims for 2 percent annual inflation on average, though it defines that goal using a related but different measure that tends to run slightly lower and comes out with more of a delay. That inflation index picked up by 6.6 percent over the year through March, and April figures will be released later this month.

The fact that high inflation is lasting so long is a problem for the central bank. After a full year of unusually swift increases, household and investor expectations for future price changes have been creeping higher, which could perpetuate inflation if households and businesses adjust their behavior, asking for bigger raises and charging more for goods and services.

As such risks have mounted, the Fed has begun to lift interest rates to try to keep price increases from galloping out of control in a more lasting way. In March, Fed policymakers lifted their main policy interest rate for the first time since 2018, then followed that up with the biggest increase since 2000 at their meeting last week.

By making it more expensive to borrow money, officials hope to weaken spending and hiring, which could help supply to catch up with demand. As the economy returns to balance, inflation should come down.

Article source:

Speak Your Mind