April Inflation: What You Need to Know

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Inflation | Image by Sauko Andrei

April brought the first drop in inflation in eight months. April’s consumer price index fell 0.2% to an annual rate of 8.3% versus March’s yearly rate of 8.5%. Annual inflation rates compare the consumer price index (or the amount consumers pay for goods and services) to the same month from the previous year.

The decline can be attributed to a slight decrease in fuel prices in April. The average price for a gallon of unleaded gasoline has since reached an all-time high at $4.37 in the second week of May.

The slight drop in inflation in April does not offer the relief Americans are hoping for, as it provides no evidence that the downward trend will continue.

Inflation and pricing pressures were seen across a myriad of categories in April. The cost of groceries —  particularly grain and chicken-based products —  dining out, and airline travel, all rose in April. Previously, consumers were buying mass amounts of tangible goods, but as inflation increases, spending has shifted to focus on the service industry.

Grocery costs rose 0.9% in April. This marks the 17th consecutive month that the nation saw an increase in grocery prices. Compared to the previous year, grocery prices are up 9.4%. While this is not as substantial as the increases seen in other areas, it still significantly impacts consumers, as staple food items are seeing the most drastic price increases.

Dairy, eggs, cereal, chicken, and other items saw drastic increases due to a rise in bird flu cases, fertilizer shortages, and labor shortages.

Restaurant dining rose 0.9%, the biggest increase for the industry since October of last year. The service industry is seeing an increase in customers, but overall is still experiencing labor shortages, supply issues, and increased costs for goods and food. Many restaurant owners have decided to pass along the increased operating costs to the consumer.

According to the WSJ, airline travel has increased exponentially since the pandemic. Along with the increased demand, airline fares experienced their fastest rise on record, spiking to an 18.6% increase over the previous year.

Higher labor costs and high fuel prices have contributed to the rise in fares. The cost of an airline ticket is unlikely to drop anytime soon as the airlines gear up to meet increased summer travel needs.

As quoted in the WSJ, Aneta Markowska, a chief financial economist at Jefferies LLC, stated, “Inflation is no longer just contained to the supply chain — these pressures are actually becoming more broad-based. We’re starting to see inflation is spreading to the services side of the economy — it’s emanating from the labor market side. That’s less likely to go away on its own, so the Fed will have to work that much harder to get us back to 2% inflation.”

Jerome Powell, chair of the U.S. Federal Reserve, made his first move to aggressively tame inflation at the May meeting of the Reserve Board by raising interest rates half a percentage point. He also indicated that he intends to raise them again in June.

However, as the service industry is experiencing inflationary pressures, the price of consumer goods would have to fall significantly to bring overall inflation down to a sustainable level.

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