Prices stay high, showing inflation pressures persist

WASHINGTON — 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.

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.”

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 consumer price index for the 25-county region that includes Long Island rose 3.7% in April compared with a year earlier. That’s the smallest year-over-year increase since August 2021, the federal Bureau of Labor Statistics reported. The index was up 4.6% in March compared with a year earlier and 6% in January and February.

“Overall, inflation continues to decline on Long Island,” said John A. Rizzo, an economist and Stony Brook University professor. “But important components of inflation, most notably food prices, continue to rise sharply.”

Grocery prices in the region were 6.1% higher last month than in April 2022, with the largest hikes in cereal/baked goods and non-alcoholic beverages, which were up 11.9% and 10.7%, respectively. Restaurant meals increased 7.6% and clothing was up 5.4%, year over year.

These rises were partially offset by a 15.3% drop in gasoline prices from April 2022. The cost of electricity fell 8%.

Rizzo and others predicted additional interest-rate hikes by the Federal Reserve.

“With inflation at the national level still well above the Fed's target of 2%, the possibility of further rate hikes and continued slowing of the economy remains,” he said.

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.

“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.

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.

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.

With James T. Madore