Inflation Takes a Slight Break

by Wall Street Rebel - Michael London | 05/11/2022 7:11 AM
Inflation Takes a Slight Break

Though prices continue to rise at an alarmingly rapid pace, inflation data suggests that the rate of increase slowed slightly in April.


Even though economists estimate the Consumer Price Index to rise at an uncomfortably quick rate of 8.1 percent per year in April, inflation is expected to moderate for the first time in months.

As long as prices continue to rise, it's impossible to ignore. Price increases have taken place in almost every sector, from fuel and bread to hotel rooms and streaming services. The Federal Reserve acknowledges that. Efforts are being made to reduce inflation by boosting short-term interest rates and lowering its asset holdings.

Due to a statistical anomaly, inflation, which increased by 8.5 percent in March, is likely to begin to moderate in the coming months. Rather than using reduced 2020 levels as a benchmark, price increases are now being judged against high price readings from last spring, when inflation began to accelerate. Because of the greater starting point, annual increases appear less severe.

Monthly data is also likely to decline, mainly due to lower gas prices in April than in March, which will be reflected in lower monthly data. According to experts who responded to a Bloomberg survey, after adjusting for volatile food and fuel prices, prices are likely to continue to rise at a healthy 0.4 percent rate every month.

A nuanced conclusion is likely to be drawn from this: Even though inflation has slowed from its highest yearly peak, it is still running at a rate that is comparable to the fastest in four decades. Price increases are no longer accelerating and may provide a small amount of good news for Federal Reserve officials. However, it is likely to be overshadowed by policymakers who still have a long way to go before bringing price increases back to more normal and predictable levels.

We believe the statistics will assist in confirming that we have reached peak inflation, according to Deutsche Bank's Matthew Luzzetti, who is the bank's senior economist for the United States. "While that subject has received much attention, I do not believe it is the most significant question."

Supply shortages for semiconductor chips, commodities, and other critical products are expected to worsen due to the Chinese government's lockdown and the conflict in Ukraine. It is uncertain how quickly supply chain concerns will be resolved, despite the fact that he and many other experts anticipate slower price hikes or even outright price reductions on several commodities, including used automobiles. Instead, Mr. Luzzetti stated that the most important factor to consider is how quickly price hikes will reduce in the future.

In addition, costs for services are growing swiftly, as rents are rising at an alarming rate and worker shortages result in higher wages and higher prices for restaurant meals and other labor-intensive expenditures, among other things.

The Federal Reserve is raising interest rates to prevent inflation from spiraling out of control in the long run.

There is an increasing danger that inflation may persist in the economy and become a more permanent part of the economy as time goes on. Household and investor expectations for future price increases have been steadily rising, which may help sustain rapid price increases as families and businesses adapt their behavior, demanding larger raises and charging higher prices for goods and services.

That is precisely what Federal Reserve officials want to avoid. When policymakers met in March, they raised their primary policy interest rate for the first time since 2018 and then followed it up with the largest hike in more than a decade at their meeting the following week.

Making borrowing money more expensive is how officials hope to limit the rapid spending and hiring that has occurred recently, allowing supply to catch up with demand. Inflation should decrease as the economy returns to a state of equilibrium.

Central bankers expect that their measures will moderate economic growth without really increasing unemployment or sending the United States into a recession as has happened in the past. Despite this, policymakers have acknowledged that bringing the economy down gradually will be difficult. They have indicated that they are willing to inflict economic pain if that is what it takes to combat rising inflation.


                     Biden's plan to fight inflation, his top domestic priority





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