As many consumers have noticed recently, the cost of living took a sharp move higher last month amid shortages of goods and supply chain issues.
The Labor Department reports that the Consumer Price Index (CPI), which measures the cost of things in the consumer economy, jumped 0.8% from March -- four times what economists projected.
On a year-over-year basis, inflation measured 4.2%, the highest level since 2008. The year-over-year number is not as dramatic as it might seem because prices are being compared to April 2020, when the economy was mostly shut down because of the pandemic.
“It looks like inflation pressures are not only building but are likely to be here at least through the rest of the year,” economist Joel Naroff, of Naroff Economics, told ConsumerAffairs. “With growth robust, firms have a measure of pricing power that they haven’t had in decades and they appear to be using it. That is why we are seeing price increases spread more widely across the economy.”
Gas, food, and used cars
Consumers have already felt the effect of rising prices. Even before the closing of the Colonial Pipeline shut off gasoline supplies to the Southeastern U.S., gas prices had been increasing. The national average price is about 14 cents a gallon higher than a month ago.
Consumers shopping for a used car or truck have probably also noticed the price rise. The index for used cars and trucks rose 10% in April. It was the fastest one-month rise since the government began tracking this sector in 1953.
Food prices also rose, with the food index rising 0.4% as grocery and restaurant prices rose in tandem.
While food and energy costs were sharply higher, the report shows that price increases were broad-cased. In fact, when you remove food and energy from the calculation, the April CPI was up 0.9% from March.
Will it last?
The Federal Reserve has kept interest rates low in hopes of drawing inflation back over 2% per year. Naroff says it’s clear that inflation is rising, but it’s less clear that the pace can be sustained.
“If growth in 2022 is again well above trend, and it is looking as if that is possible, then we could experience inflation closer to 3%, rather than the Fed’s desired average 2% rate, for an extended period,” he said.