By Gwynn Guilford
Consumer prices surged in April by the most in any 12-month
period since 2008 as the recovery picked up, reflecting both rising
demand as the Covid-19 pandemic eases and supply bottlenecks.
The Labor Department reported its consumer-price index jumped
4.2% in April from a year earlier, up from 2.6% for the year ended
in March. Consumer prices increased a seasonally adjusted 0.8% in
April from March. The index measures what consumers pay for goods
and services, including clothes, groceries, restaurant meals,
recreational activities and vehicles.
Higher prices for used autos surged 10% in April compared with
the prior month -- the largest monthly increase on record. That
accounted for more than a third of the increase, the Labor
Department said.
U.S. stocks fell after the inflation data was released,
extending pressure on financial markets. Investors are concerned
that rising prices could prompt the Federal Reserve to move on
interest rates sooner than expected.
Policy makers are watching April's reading to gauge the extent
of what many expect to be a monthslong rise in prices, after a year
of anemic overall inflation as the pandemic curbed consumer
spending. Whether an upswing in prices proves temporary is a key
question for financial markets and the U.S. recovery, as the Biden
administration, Congress and the Fed continue to support the
economy with fiscal- and monetary-policy measures.
The so-called core price index, which excludes the
often-volatile categories of food and energy, climbed 3% in April
from a year before.
Food prices climbed 2.4% from the same month a year ago,
including a 3.8% rise in the cost for restaurant meals and other
meals away from home. Car and truck rentals surged 82% compared
with April 2020, and airline fares leapt 9.6%.
The annual inflation measurements are currently being affected
by comparisons with the figures from last year early in the
pandemic, when prices dropped steeply due to collapsing demand for
many goods and services during Covid-19 lockdowns, said Laura
Rosner-Warburton, senior economist at MacroPolicy Perspectives.
This so-called base effect is expected to influence inflation
readings until the summer, she said. For example, gasoline prices
soared 50% versus April 2020, though they decreased 1.4% versus
March.
Compared with two years ago, overall prices rose a more muted
2.2% in April.
The Fed has said it expects the inflation pickup to be
transitory and has said it would hold rates near zero until the
central bank's preferred inflation measure is averaging 2% and full
employment has been achieved. A persistent, significant increase in
inflation could prompt the central bank to tighten its easy-money
policies earlier than it had planned, or to react more aggressively
later, to achieve its 2% inflation goal.
Today's higher-than-expected reading will certainly stoke
inflation fears, said Tim Duy, chief U.S. economist at SGH Macro
Advisers.
"Whether or not that translates to more sustained inflation over
time is still an open question," said Mr. Duy, adding that those
concerns are unlikely to sway central bankers. "The Fed has itself
locked into their new policy framework and for right now they're
treating this as a transitory event."
White House officials speaking ahead of the report's release
said the administration is closely tracking a range of potential
economic risks, including inflation. The administration anticipates
temporary inflation to continue for several months, perhaps through
much of 2021, a result of what one White House official described
as mismatches between supply and demand as the economy comes back
online after widespread pandemic-related lockdowns.
Some Republicans have taken aim at Democrats and the
administration, saying their policies are a factor that will drive
up inflation. "The @USDOL's consumer price index for April showed
the largest spike in inflation since 2008. President Biden is
bungling our economic recovery, " tweeted Sen. Roger Marshall (R.,
Kan.).
Consumers are seeing many prices jump for a variety of reasons
as the U.S. economic recovery gains momentum. Used-car prices have
surged, thanks to a global chip shortage that has damped production
of new cars. The average price paid for a used car exceeded $25,000
in April for the first time in the history of research firm J.D.
Power's tracking. Many companies are passing on to consumers the
higher costs they are facing for crops, oil and truckers' wages.
Airfares and hotel-room rates are climbing as consumers start
traveling again after a year of restraint during the pandemic.
More broadly, rising prices reflect strong consumer demand
fueled by widespread Covid-19 vaccinations, easing business
restrictions, trillions of dollars in federal pandemic relief
programs and ample consumer savings. Real U.S. gross domestic
product rose 6.4% at a seasonally adjusted annual rate in the first
quarter and economists surveyed by The Wall Street Journal in March
forecast the second quarter to grow at an 8.1% annual rate, putting
the U.S. economy on track for its best year since the early
1980s.
"I think a lot of us are expecting a pretty significant increase
of spending on services in the next couple months and that's where
a lot of the pressure on CPI is going to come from," said Richard
F. Moody, chief economist at Regions Financial Corp., referring to
the consumer-price index.
The longer that burst of spending persists, the more latitude
producers have to raise prices, he said. And once prices go up,
they seldom fall back to where they were, even if the acceleration
in overall inflation is temporary, he added. "That very much
matters in terms of what's the lasting impact on household
budgets," said Mr. Moody.
John Wertz, a 34-year-old Seattle resident, said he has noticed
a sharp climb in prices for steak, beer, ride-sharing services,
takeout and other goods and services -- and has cut back
accordingly. Mr. Wertz said he is conflicted in particular about
having to pull back on visits to the breweries he used to frequent
and still wants to support.
"I'd say prices for grabbing a beer to consume on site have gone
up around 15% to 20%. This is a combination of either raising the
sticker price or no longer including sales tax in the sticker
price," said Mr. Wertz, who is earning his Ph.D. in accounting.
"Either of these makes it harder to justify going out as often
because the amounts add up."
Some 36% of small businesses indicated that they had raised
selling prices in April, the highest share since 1981, according to
a survey conducted by the National Federation of Independent
Business.
Stronger demand has spurred employers to try to hire more
workers, but many businesses are saying they can't find enough
people to hire. Job openings reached a high in March as the gap
widened between open positions and workers taking the roles, a
dynamic that could push up wages.
The employment cost index for the first quarter of 2021 showed
that wage growth returned to the same pace as in 2018 and 2019, in
what was a tight labor market at the end of the last expansion.
If inflation remains elevated, it will get harder and harder for
the Fed to stick to its stance, said Mr. Moody. "And that's where
market participants could start to diverge from the FOMC, in which
case we would see rates move higher," he added, referring to the
Fed's policy-setting committee.
Andrew Restuccia contributed to this article.
Write to Gwynn Guilford at gwynn.guilford@wsj.com
(END) Dow Jones Newswires
May 12, 2021 12:14 ET (16:14 GMT)
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