U.S. consumer prices surged in April as the economic recovery picked up, reflecting surging demand as the pandemic eased and higher prices due to 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. That is the highest 12-month level since the summer of 2008. 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.
The so-called core price index, which excludes the often-volatile categories of food and energy, climbed 3% in April from a year before.
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. “It’s a question of how long that burst in spending persists. And the longer it persists, the more latitude producers have to raise prices.”
The annual inflation measurements will be boosted 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.
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.
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 Federal Reserve continue to support the economy with fiscal- and monetary-policy measures.
Economists surveyed in March by the Journal expect this year’s inflation pickup to prove temporary. They projected on average that annual inflation, measured by the CPI, will rise to 3% in June, which would be the highest rate since 2012, before falling to 2.6% by December.
The Fed also expects inflation to climb temporarily this year. 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.
The central bank’s inflation goal is based on a different measure: the Commerce Department’s price index of personal-consumption expenditures, which tends to run a bit below the CPI. The Fed has said it would hold rates near zero until PCE inflation is averaging 2% and full employment has been achieved.
Once prices rise, they seldom fall back to where they were, even if the acceleration in overall inflation is temporary, Mr. Moody said. “That very much matters in terms of what’s the lasting impact on household budgets,” he added.
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.
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“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.”
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.
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