Despite soaring prices, consumers’ continued willingness to continue spending is helping to sustain the economy.
Washington- Inflation gauge closely tracked According to the Federal Reserve Board, it rose 6.3% in April from just the previous year. Below the height of 40 years set in March And the first slowdown since November 2020.
Friday’s report from the Commerce Department shows other recent signs that high inflation continues to cause difficulties for millions of households, but at least for now, it could eventually ease. Was added to.
The report also shows that consumer spending rose a healthy 0.9% from March to April, surpassing monthly inflation for the fourth straight year. Despite soaring prices, consumers’ continued willingness to continue spending is helping to sustain the economy. But all that spending has helped keep prices high, which could make the Fed’s goal of controlling inflation even more difficult.
Monthly prices rose 0.2% from March to April and 0.9% from February to March.
Still, inflation remains painfully high, especially for low-income households, many of whom are black or Hispanic. The surge in demand for furniture, appliances and other commodities, combined with the roar of the supply chain, began to skyrocket about a year ago.
Consumers are now increasingly shifting their spending from goods to services such as airfare and entertainment tickets. It’s unclear how much that trend is, but it could help cool inflation in the coming months. The cost of services such as restaurant meals, plane tickets and hotel rooms is also rising.
Chair Jerome Powell has promised to continue raising the Fed’s key short-term interest rates until inflation “falls in a clear and compelling way.” These rate hikes have spurred concerns that the Fed may slow down borrowing and spending, driving the economy into recession. Although the market has recovered this week, this concern has caused stock prices to plummet in the last two months.
Powell said the Fed is aiming for a “soft or soft” landing that slows wages, consumer spending and growth, but the economy is avoiding a recession. Most economists say such results are plausible, but wondering if they can be achieved.
The consumer price index, a well-known inflation indicator, also reported a still high inflation slowdown earlier this month. The consumer price index in April rose 8.3% year-on-year, down from March’s 40-year high of 8.5%.
Still, rising gas and food prices exacerbated by Russia’s invasion of Ukraine will keep inflation readings painfully high, at least during the summer. According to AAA, the national average price of a gallon of gas has reached $ 4.60. It was $ 3.04 a year ago.
However, other trends suggest that core inflation may continue to slow in the coming months. Retailers report an increase in stocks of home TVs, patio furniture and other merchandise as consumers shift their spending to travel and service-related products such as luggage and restaurant gift cards.
These stores need to offer discounts to clear inventory within the next few months. And as some supply chains have been unleashed and more workers have been hired, automakers are increasing production. Both trends can help lower the price of a product.
At the same time, higher wages to many workers, especially in restaurants, hotels and warehouses, will continue to push up the price of services, which in turn will at least partially offset the benefits of cheaper goods.
And most economists predict that inflation as measured by the Fed’s recommended gauge will still be around 4% or more by the end of this year. Rising prices at that level could mean that the Fed will still raise interest rates and lower inflation to the 2% target.
The inflation index, called the Consumer Price Index, reported on Friday, differs from the consumer price index in several ways and helps explain why it shows lower inflation levels than the CPI. PCEs are more important than CPIs for rents that are steadily rising.
The PCE price index also takes into account changes in people’s shopping practices in the event of a surge in inflation. In this way, for example, consumers can capture the tendency to switch from expensive domestic brands to cheaper store brands.
Inflation gauges used by the Federal Reserve have slowed to a still high of 6.3%
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