Inflation accelerated at its fastest pace in more than 12 years in April as the US economic recovery kicked off and energy prices rose, the Department of Labor reported on Wednesday.
The consumer price index, which measures a shopping basket as well as energy and housing costs, rose 4.2% year over year, compared to the Dow Jones estimate for a 3.6% increase. The monthly profit was 0.8% versus the expected 0.2%.
Excluding volatile food and energy prices, the core CPI rose 3% over the same period in 2020 and 0.9% monthly. The respective estimates were 2.3% and 0.3%.
The headline CPI rate increase was the fastest since September 2008.
Overall, energy prices rose 25% year over year, including a 49.6% increase for gasoline and 37.3% for heating oil. It did so despite the fact that most energy categories saw a decline in April.
Pump prices, which fell 1.4% in April, resumed their rise in May. According to the AAA, the national average is back above $ 3 per gallon for the first time since November 2014.
Used car and truck prices, viewed as a key inflation indicator, rose 21%, including a 10% increase in April alone. Shelter, another key component of CPI, was up 2.1% year over year and 0.4% over the month.
Aside from soaring prices, one of the main reasons behind the big annual gain was base effects, which meant inflation was very low at that point in 2020 as the Covid-19 pandemic caused a widespread shutdown of the US economy. Year-on-year comparisons will be skewed for a few months due to the impact of the pandemic.
Because of this, Federal Reserve policymakers and many economists are dismissing the current round of numbers as temporary, with the expectation that inflation will settle around the central bank’s target of 2% later this year.
Exchange futures briefly hit their lows after the CPI figures were released, indicating a negative open on Wall Street. Government bond yields were mostly higher.
Price spikes have also occurred due to supply shortages caused by a number of factors, from manufacturing issues with the ubiquitous semiconductors in electronics products, to the blockade of the Suez Canal in March, to increasing demand for a variety of raw materials.
Sawn timber prices alone rose by 124% in 2021 due to the continuing demand for building materials. Copper, which is often viewed as a proxy for economic activity, is up nearly 36%.
Still, Fed officials have repeatedly stated that they will not raise interest rates or withdraw monthly bond purchases until inflation averages 2% over an extended period of time.
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