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US Prices Stay High, Showing Inflation Pressures Persist
gvw_ap_news
By Associated Press
Published 2 years ago on
May 10, 2023

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WASHINGTON (AP) — Consumer prices in the United States rose again in April, and measures of underlying inflation stayed high, a sign that further declines in inflation are likely to be slow and bumpy.

Prices increased 0.4% from March to April, the government said Wednesday, up sharply from a 0.1% rise from February to March. Compared with a year earlier, prices climbed 4.9%, down slightly from March’s year-over-year increase. It was the smallest annual increase in two years.

Persistent Inflationary Pressures

Even with price pressures rising in April, the latest data did provide some evidence of cooling inflation. Grocery prices fell for a second straight month. And the cost of many services, including airline fares and hotel rooms, plunged. Though apartment rents rose in April, they did so more slowly than in previous months.

The Federal Reserve’s policymakers have been closely watching services prices, and April’s figures could lead them to do what they had signaled after their meeting last week: Pause their rate hikes, after 10 straight increases, while they assess the economic impact the higher borrowing costs have had.

Measured year over year, last month’s decline in inflation was much less than in previous months, underscoring that consumer price increases might not fall back to the Fed’s 2% target until at least well into next year.

Excluding volatile energy and food costs, so-called core prices rose 0.4% from March to April, the same as from February to March. It was the fifth straight month that they have risen at least 0.4%. Core prices are regarded as a reliable gauge of longer-term inflation trends. Compared with a year ago, core inflation rose 5.5%, just below a year-over-year increase of 5.6% in March.

“This is a story of still-sticky core inflation at an elevated level,” said Blerina Uruci, chief U.S. economist for fixed income at T. Rowe Price. “This report puts the Fed on track to keep rates high this year.”

Mixed Consumer Impact

For everyday consumer items, Wednesday’s inflation report was mixed. Gasoline prices jumped 3% just in April. By contrast, grocery prices dropped for a second straight month. Used car prices surged 4.4% after nine months of declines.

Airline fares, though, dropped 2.6% in April, and hotel prices plunged 3% after four straight monthly increases.

The Fed is paying particular attention to a measure of services inflation that covers such items as dining out, hotel stays and entertainment and that has remained chronically high for much of the past year. This measure, which excludes energy services and housing, rose just 0.1% from March to April, the smallest increase since last July.

Challenges for Businesses

Consumers and businesses continue to struggle with higher costs, and there are signs that some are responding by reining in their spending.

Donald Minerva, who owns the Scottadito Osteria Toscana, an Italian restaurant in Brooklyn, says he has had to raise his prices several times since the pandemic struck to keep pace with rising costs for raw ingredients, all kinds of insurance and higher wages.

Minerva has tried to find ways to save on costs. He has stopped serving lunch during the week and is closed on Mondays and Tuesdays. Even with the reduction in hours, though, his labor costs are about 10% higher than before the pandemic.

Potential Spending Shifts

With consumers starting to resist higher prices, Minerva said, he’s been forced to drop expensive menus for such holidays as Valentine’s Day and Mother’s Day. He introduced a more costly prix fixe menu for New Year’s, only to see some customers cancel.

“People are not spending as much money,” he said. For New Year’s Eve dinner, “we did what we normally did, and we lost the holiday.”

“Consumers don’t have unlimited capacity to keep spending at these price levels,” said Thomas Simons, an economist at Jefferies, the investment bank. “That is going to lead to some re-budgeting and lower consumption in the future.”

A slowdown in consumer spending, which drives most of the U.S. economy, could help ease inflation in the coming months. At the same time, average paychecks are still rising rapidly. Though beneficial for workers, that trend likely means that many companies will keep raising prices to offset their higher labor costs.

And some companies are still experiencing strong consumer spending. Delaware North, which runs food and hotel services at resorts, sports stadiums and national parks in the United States and abroad, is still enjoying healthy demand at destination resorts at places like the Grand Canyon.

“They’re demonstrating this incredible resilience,” said Frank Mendicino, the company’s executive vice president. “People are traveling to these bucket-list destinations like the Grand Canyon.”

Mendicino acknowledged that the company has raised prices for some of its hotel rooms mostly in response to higher demand, not because of its higher labor costs.

Inflation’s Effects on the Economy

For more than two years, high inflation has been a significant burden for America’s consumers, a threat to the economy and a frustrating challenge for the Fed. The central bank has raised its key interest rate by a substantial 5 percentage points since March 2022 to try to drive inflation back down to its 2% target.

Besides making borrowing far more expensive for consumers and businesses, those higher rates have contributed to the collapse of three large banks in the past two months and to a likely pullback in bank lending. The result could be a further weakening of the economy.

Even more ominously, the government’s debt ceiling may be breached by early June, and Republicans in Congress are refusing to raise the cap unless President Joe Biden and congressional Democrats agree to sharp spending cuts. If the debt ceiling isn’t raised in time, the nation would default on its debt, a scenario that could ignite a global economic crisis.

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