By CHRISTOPHER RUGABER
AP Economics Writer
WASHINGTON (AP) — After declining for almost a yearConsumer price data due for release on Wednesday will likely show that US inflation remained stubbornly high in April, a sign that it may be entering a new and more complicated phase.
Consumer prices are forecast to have risen 0.4% from March to April, much faster than the previous month’s 0.1% rise, according to a survey of economists by data provider FactSet.
Compared to a year earlier, prices are forecast to have risen 5% in April, the same year-over-year increase as in March. If that forecast turns out to be correct, it would be the first time that annual inflation has not fallen after nine months of declines.
More expensive gasoline, apartment rentals and possibly used cars are among the items that could have fueled inflation last month. The cost of airfare and hotel rooms, by contrast, is expected to have declined after months of increases.
For more than two years, high inflation has been a major burden on American consumers, a constant threat to the economy, and a frustrating challenge to the Federal Reserve. However, new problems are now emerging.
The Fed has raised its benchmark interest rate by a substantial 5 percentage points from March 2022 to try to get inflation back to its 2% target. In addition to making loans much more expensive for consumers and businesses, those higher rates have contributed to the collapse of three major banks in the last two months and to a probable setback in bank lending. The result could be a further weakening of the economy.
Even more disturbing, the government debt ceiling can be defaulted in early June, and Republicans in Congress refuse to raise the cap unless President Joe Biden and Democrats in Congress agree to deep spending cuts. If the debt ceiling is not raised on time, the nation would default on its debt, a scenario that could ignite a global economic crisis.
Inflation has slowed sharply since peaking at 9.1% a year last June. Still, many economists say the decline so far has likely been the easy phase. Supply chain entanglements that were leaving many grocery shelves empty and delaying delivery of furniture, cars and electronics have been resolved. Gas prices have also fallen steadily after rising after Russia’s invasion of Ukraine, although they rose again in April after OPEC agreed to cut oil production.
Excluding volatile food and energy costs, so-called core inflation is also expected to have remained high last month, with economists forecasting a 0.3% rise from March to April and 5.4% from the previous month. last year.
The Fed and many economists closely monitor core prices, which are seen as a better measure of long-term inflation trends. One of the main drivers of core inflation – apartment costs and other housing expenses – rose 8.2% in March from the previous 12 months. Most economists expect apartment rentals to grow much more slowly in the coming months, which will help curb inflation as more new apartment buildings are completed.
Chairman Jerome Powell and other Fed officials are paying close attention to the cost of services, excluding energy and housing. They find rising service prices particularly difficult because they are heavily driven by wage increases.
The prices of restaurant meals, airline tickets and hotel rooms have risen steadily as companies have had to raise wages in those industries to find and retain workers. Restaurant prices rose 8.8% in March from a year earlier.
“The most persistent area of inflation is in basic services, excluding housing, which has hovered around 4.5% since last August,” John Williams, president of the Federal Reserve Bank of New York, said Tuesday. Williams, who is close to Powell, is an influential voice in Fed policy.
“This is due to a continued imbalance in overall supply and demand, and it will take longer to reduce,” Williams said.
When they met last week, Fed policymakers agreed to raise their reference rate by a quarter point, the tenth straight rise, to around 5.1%, the highest level in 16 years. The Fed’s rate hikes, which are intended to cool spending, growth and inflation, have driven up the costs of mortgages, car loans and credit cards and business loans.
Most economists believe that rate hikes will, over time, have the desired effect. However, most also worry that the hikes will weaken the economy enough to push it into a recession sometime this year.
At last week’s meeting, the Fed signaled that it can now pause its rate hikes and take time to monitor the effects of its policy actions on the economy, which could take many more months to become fully apparent.